Balance Between FDI, FII lop-Sided in India: Citigroup.

There has been a lot of talk about how India is restricting foreign direct investment (FDI) in certain sectors. But a report by Citigroup says that compared to the trickle in 2000, FDI into India has today become a downpour and in the process, shown the Indian investor the door in both investments, and in the consumption theme. CNBC-TV18’s Sajeet Manghat and Suresh Cenkat delve into the argument.

FDI has become a thorn in the side of the average equity investor. That's the argument Citigroup is standing by. FDI flows into India may be marginal when compared to what china is seeing, but there is no denying that the USD 37 billion of FDI inflow in FY10 is nine times what came into the country in 2000.

Cumulative FDI so far stands at USD 166 billion -- that's twice the amount of foreign institutional investors (FIIs) inflows. And if FDI is taken at market value, it works out to USD 400 billion dollars -- again, two times the total FII holdings in India.

And why not? Given the fact that FDI fuels growth by creating capacity, bringing in technology, generating employment, and limiting volatility on the forex front, it is preferred to FII investments by policy makers.

However, Citigroup points out that over the last few years, the balance between FDI and FII has become lop-sided in FDI’s favour. According to Citigroup, over 85% of the four-wheeler sector, over 80% of the consumer durables space, and over 25% of the cement sector is occupied by FDI money.

That's not all. The amount of FDI participation is rising steadily at both the project and the subsidiary level in the real estate and capital goods sectors. Not to mention higher in-bound acquisitions in mining, metals and pharmaceuticals.

What's more alarming, says Citigroup, is that FDI money is today twice the amount of money companies have managed to raise from the markets. This indicates that the average Indian investor is not getting any play

Source : moneycontrol.com