It is fortunate for us Indians that India is in the era of virtuous cycle of high growth rate and investments.

India?s success in demonstrating its IT prowess followed by its success in BPO business and outsourcing of other services to the world, resulted in employment and significantly higher standard of living for millions of graduates. This in turn triggered consumption, higher saving, increasing capital investment, resulting in multiplier effect on the economy. Soon the elephant started running and caught the world?s attention. Foreign investment started coming in as a blessing for capital hungry India.

At present and at least for the next decade, India is and likely to be amongst the best in terms of demonstrating growth (real economy is expected to grow at least by 7-8%). There are hardly any destinations that may match India?s growth appetite and the efficient capital market system. Hence, India is geared and will certainly attract higher allocation of global portfolio.

It is just a beginning. India has received highest annual foreign institutional investment (FII) of just $20 billion in calendar year 2007, and cumulative FII investment in India till date is about $82 billion. This is just equal to 0.18% of the global market capitalisation of $46 trillion. Even a bare minimum 2% (equal to share of India?s current GDP in world economy) of global portfolio allocation would mean over $900 billion of investment in India.

In addition, Domestic Institutional Investors (DIIs) are demonstrating substantial growth both in terms of funds under management and the allocation for investment in equities.

Mutual Fund AUM in India has grown to Rs 7,945 bn by December 2009 and is expected to grow at 22-25% p.a. till 2015. The share of equity and balanced funds in the AUM has grown from 16% in March 2003 to 29% in December 2009 and is expected to further increase to the levels of 40-45% as in developed markets today.

Life insurance premium in India has grown to Rs 2,218 billion by financial year 2008-09 at a cumulative growth rate of 26% from Rs 557 billion in 2002-03. However, premium per capita (adjusted for PPP) in India is just around $ 150, compared to more than $ 1000 for most developed markets (South Korea $ 1800; Singapore $ 1700) and presents tremendous scope for growth.

Also, due to continued liberalisation in respect to their investment portfolio, insurance companies and the New Pension Scheme in India are expected to significantly increase their exposure to equities.

Now can we imagine what this kind of liquidity can do for Indian markets keeping in mind that Sensex was at its peak price earnings (PE) multiple of around 22 times in calendar year 2007, the year in which India got the highest foreign investment?

The author is vice president with Centrum Capital and the views expressed are purely personal