Mumbai: Multinational corporations are investing more than domestic companies in new projects as poor balance sheets hold back local firms, data from the Reserve Bank of India shows.Bullish expectations on the economy have made them put in more resources into business when compared to local companies over the past one year, the data shows.
Foreign direct investments (FDI) alone accounted for Rs 91,200 crore or 37% of the Rs 2.6 lakh crore worth non-bank funds that financed businesses in India during April-July, according to RBI data. IPOs, private placements and subscription to commercial papers together accounted for Rs 677 crore or 26% of the non-bank funds flow during the period.
“High FDI inflows are a welcome sign of global investor confidence in India's potential and growth story," said Saugata Bhattacharya, chief India economist, Axis BankBSE -0.81 %. “These equity investments, are likely a combination of mer gers and acquisitions, including a few large ones, and investments in domestic IPOs, which have surged in FY18.“But experts say that most of the investments so far are not in the fund-starved infrastructure or core sectors.
“Most of this flow is still in traditional sectors like services, computer software hardware, auto etc,“ said Anubhuti Sahay , head of South Asia research at Standard Chartered Bank. “We expect further increase in FDI flow over the years as the recently liberalised sectors receive more inflow.“ The recent improvement in India's ranking in ease of doing business could also attract higher foreign capital flows. “As invest ment climate improves, FDI in greenfield investments are likely to surge,“ said Bhattacharya.
Experts have also observed that it is foreign investors who are buying the India story more than local business houses.
"I am sure my friends from overseas who come on the ground with $60-70 billion of FDI every year... I will vouch for that that this is a great opportunity . So, why are Indians less enthusiastic than foreigners we have to ask ourselves," said Sunil Mittal, chairman, Bharti group, at a panel discussion at the recent Economic Times Awards function.
From the lending side too, for over two years now, local banks are reluctant to lend to new projects as they have turned cautious on asset quality concerns. Even local NBFCs have been lending more than banks, but mostly to retail borrowers and small businesses. “Currently , demand from the usual domestic sources is not as strong on twin balance sheet issues. Recent announcement of recapitalisation bond is likely to help but the impact is expected to come with a lag," said Sahay.
Source: economictimes.indiatimes.com