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Jardine Fleming expert pats FIIs for shoring up Indian markets

Foreign Institutional Investors or FIIs have made huge investments in India because they think their investments are not only safe but will yield increasing returns, said U R Bhat, director and Chief Investment Officer of Jardine Fleming (India) Asset Management Limitec.

Addressing a seminar on ''FIIs' Role and Outlook for India'' at the Indian Merchants' Chambers in Bombay today, Bhat said it is a wrong notion that FIIs are a bunch of fair-weather friends who will desert you at the first signs of dark clouds on the horizon.

Responding to a remark by Pradeep Chinai, the IMC president, that FIIs neglected ''B'' group scrips and invested mainly in ''A'' group scrips, Bhat said the scrips of companies continuously entered and exited both the ''A'' and ''B'' groups, as these groups were not static but dynamic bodies.

As such, there was no ground to blame FIIs of being partial to specific companies. FIIs looked for only companies' record in respect of accountability to shareholders and adherence to principles of corporate governance, Bhat said.

Over the past nine years, FIIs invested about Rs 420 billion (US $ 10 billion) in India as against the Unit Trust of India's total investment of Rs 350 billion. Despite recent rupee devaluation, which severely hurt the FIIs, their investment in India was rising ''because FIIs believe that Indian economy is sound and fertile for long-term investment.

Trying to demystify the FIIs' role, he said the FIIs were international mutual funds channelling vast pension funds, provident funds and other savings available abroad into sound and diversified portfolios in countries like India, based on well-laid-out investment norms.

About 30 to 35 per cent of FII investments came from 'India Fund' which was dedicated to making investment only in this country.

Similarly, a certain percentage of the FIIs' total resources were earmarked as 'Regional Funds' (such as Asia Fund). 'Emerging Markets Fund', 'Global Fund', 'Index Fund' and 'Hedge Funds'. And in all these, Indian companies got a flexible share, which rose and ebbed depending on the economic and political factors prevailing in India.

India gets a two to three per cent allocation from the 'Emerging Markets Fund'. Its share can rise to seven to eight per cent bringing in US $ 7-8 billion additional investment, if India cared to streamline its systems and policies.

On the FIIs' investment in India, he said, because they perceived that India's macro-economic conditions were getting better, valuation was becoming more attractive, corporate fundamentals were improving due to restructuring, increasing competitiveness and higher adherence to corporate governance, improved systems of trading such as demat, dimming of prospects in competing Asian countries and increasing recognition of India as an asset class.

Bhat said that slow reversal of liberalisation in certain areas, road blocks to progress, inconsistent exchange rate policy, improved investment prospects in neighbouring countries are not necessarily negative factors for India.

UNI

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