$100bn reasons why foreign investors have pumped FDI, FPI into India

ANALYSIS
$100bn reasons why foreign investors have pumped FDI, FPI into India
Reliance Industries accounted for around 60% of FDI coming into the country which had blue-chip investors reaching deep into their pockets.Courtesy: Getty Images

India’s growth story may be slightly revised due to the ravages wrought by the Covid-19 virus. But there is still overseas interest across sectors, which indicates that investors are still optimistic about the country’s long-term prospects for economic upliftment.

The Covid-19 pandemic, the world’s most stringent lockdown and an 8 per cent contraction in GDP last year doesn’t seem to have dampened the appetite of foreign investors for a slice of the Indian market in 2020-21.

This, and the resulting inflow of investor dollars, has boosted the country’s foreign exchange reserves during the year under review by more than $100 billion to $576.8 billion as on April 2, 2021. The money flowed in both in the form of foreign of foreign direct investment (FDI) as well as in the form of foreign portfolio investment (FPI).

The country’s foreign exchange reserves grew more than $100 billion to $576.8 billion as on April 2, 2021. The money flowed in both in the form of FDI as well as in the form of FPI.

Net FDI inflows set a new record

FDI flows into the country during 2020-21 stood at $54.67 billion, according to figures released by the Reserve Bank of India. Outbound FDI flows, i.e., investments made by Indian companies in foreign countries during the year under review were $11.30 billion.

Net FDI inflows, therefore, were $43.37 billion, a new high, comfortably overhauling the previous record of $43.01 billion set in the previous financial year.

Foreign investors also continued to pour money into the country’s debt and equity markets, pumping in as much as $36.16 billion during the financial year ended March 31, 2021. This took the benchmark BSE Sensex from a level of 28,265.31 on April 1, 2020 to 49,569.15 on March 31, 2021. Along the way, it touched 50,000 for the first time on January 21, 2021.

A man walks past an LIC billboard. Union finance minister Nirmala Sitharaman announced Life Insurance Corporation’s (LIC) IPO to enter the share market in the oncoming fiscal year. She has also proposed to increase FDI in insurance sector from current 49 % to 74 %.
A man walks past an LIC billboard. Union finance minister Nirmala Sitharaman announced Life Insurance Corporation’s (LIC) IPO to enter the share market in the oncoming fiscal year. She has also proposed to increase FDI in insurance sector from current 49 % to 74 %.Courtesy: Getty Images

Reliance accounts for around 60 per cent of FDI

The two major factors driving the flood of FDI inflows in 2020-21 were undoubtedly the sale of stakes in Reliance Jio and Reliance Retail to a clutch of deep pocketed, blue chip foreign investors and the launch of the production-linked incentive (PLI) scheme, which saw several marquee MNCs flock to India.

In May last year, Facebook acquired a 9.99 per cent stake in Jio Platforms, Reliance’s technology arm for $5.7 billion. This was the largest ever investment in any technology company in the world for a minority stake. Obviously, Facebook chief Mark Zuckerberg was looking beyond lockdowns, slowdowns and pandemics and liking the India story that he saw.

FDI inflows during 2020-21 were $54.67 billion. Outbound FDI flows were $11.30 billion. Net FDI inflows, therefore, were $43.37 billion, comfortably higher than the previous record of $43.01 billion in the previous fiscal.

This was followed by a spate of deals over the next couple of months during which the likes of Google, KKR, Silver Lakes, Mubadala and a host of others bought into Jio Platforms and, to a smaller extent, into Reliance Retail. The total investments: A little more than $30 billion.

That means Reliance Industries Ltd (RIL) and its subsidiaries, controlled by Asia’s richest man Mukesh Ambani, accounted for more than 60 per cent of all FDI inflows into India in the last financial year.

Incidentally, RIL is negotiating the sale of a 20 per cent stake in its bread and butter oil and petrochemicals vertical with Saudi Aramco, the world’s largest oil company, for an estimated $15 billion. If the transaction does take place, it will show up in the FDI inflow figures for the current fiscal.

Manufacturing facilities in Noida for smartphone maker Lava. The PLI scheme introduced by the GoI has attracted investments from top global smartphone brands.
Manufacturing facilities in Noida for smartphone maker Lava. The PLI scheme introduced by the GoI has attracted investments from top global smartphone brands.Courtesy: Getty Images

PLI scheme was the other star of the show

The other big ticket draw for FDI was the PLI scheme. This initiative, which envisages attracting investments from companies that are looking to derisk their supply chains from their current over-reliance on China, has attracted investments from marquee investors such as Apple, through its contract manufacturers Foxconn, Pegatron and Wistron, and Samsung, among several others, setting up or expanding their smartphone manufacturing units in the country.

The government has also announced incentives for other sectors like batteries, medical devices, etc. The inflows from multinationals in many of these other sectors will reflect in the FDI inflows for the current financial year.

The two major factors FDI inflows in 2020-21 were the sale of stakes in Reliance Jio and Reliance Retail to foreign investors and the launch of the PLI scheme, which saw several marquee MNCs flock to India.

Maharashtra, Gujarat top FDI charts

During the year under review, Maharashtra attracted the highest amount of FDI and accounted for 46.67 per cent of the total inflows, followed by Gujarat, which attracted 24.38 per cent. Karnataka and the National Capital Territory of Delhi were in third and fourth places, respectively. Together, these four accounted for as much as 90 per cent of all FDI inflows.

Despite the second wave of Covid that is currently ravaging the country, most analysts expect the economy to weather the storm and gather strength in the quarters ahead. The strong bets placed on India by hardnosed foreign investors would suggest there’s merit in that line of thinking.

If this prognosis proves correct, and the PLI scheme continues to witness the kind of traction it has seen so far, the current financial year could yield another FDI and FPI bonanza for India.

No stories found.
No stories found.
No stories found.
No stories found.
No stories found.
No stories found.
India Global Business
www.indiaglobalbusiness.com