FIIs get edgy

Weighed down by worsening macro-economic factors, combined with the governance deficit at the centre, foreign investors are increasingly wary of giving India the premium slot among emerging markets investment destinations, something that the country used to enjoy even six months ago. While FIIs have, for the first time in nine quarters, reduced their total stake in top Indian companies, a survey among foreign fund managers shows that they are underweight on India. However, the silver lining is that even if one of the two—finance and politics—shows some signs of stabilizing, foreign flows would again pour into India, people in the institutional dealing side of the market said. Over the last few months, India has witnessed a series of arrests of high-profile people, including former ministers and MPs, for their alleged involvement in a number of scams. This has taken a heavy toll on the Congress-led UPA government with even its own ministers admitting governance deficit, and there is a near-total policy freeze. On the macro economic front, for months the rate of inflation has been hovering around the double-digit mark, and to contain that RBI has raised key policy rates ten times since March 2010. Since then the growth rate, which was 9.4% in March 2009, dropped to 7.8% by March 2011. A recent survey among global fund managers, carried out by Bank of America-Merrill Lynch, showed that India is among the least favoured investment destinations, with a underweight scale at -20%, the lowest reading in the last six months. The same survey also noted that among the Asia-Pacific investors, India has a -13% preference, better than Australia (-17%), the same as Indonesia (-13%) but worse than Korea (-8%).