How reforms have revived investors' interest in India

Foreign investors are showing renewed interest in India following the reforms thrust announced by the government, but further steps are needed to improve the environment for economic growth, experts say.

According to a research report by Bank of America Merrill Lynch, there has been a sea change in interest in India post the reforms announced last week that included allowing foreign direct investment in multi-brand retail and the civil aviation sector.

"Clients sensed a change in the political environment in India and some investors who earlier were staying away from India were keen to meet and understand the shape of things to come," Bank of America -- Merrill Lynch Research Analyst Jyotivardhan Jaipuria said.

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Echoing similar sentiments, DSP BlackRock Investment Managers executive vice president and head of fixed income Dhawal Dalal said there has been a marked improvement in the sentiment of market participants since the government re-initiated the reforms process early this month.

The government has taken a number of reform initiatives such as opening the multi-brand retail sector to FDI, hiking diesel prices by over Rs 5 a litre, capping the number of subsidised LPG cylinders to six per family a year, allowing foreign carriers to pick up stake in domestic airlines and liberalising FDI rules for broadcasting sector.

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Besides, talks are on to increase the FDI cap in the insurance sector to 49 per cent, from the existing 26 per cent.

Dalal said the government is likely to take further steps to contain the fiscal deficit and to improve the environment for economic growth.

Moreover, Reserve Bank of India is likely to be supportive of the government's efforts by adequately maintaining systemic liquidity in the banking system.

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Meanwhile, the BoA-ML report said that notwithstanding the initial rally in the equity market, investor participation was relatively 'muted' mainly because they thought markets had run up too fast and preferred to wait for a correction.

Moreover, while reforms were a welcome move, the general feeling was that much more would need to be done before the economy could be on a reviving mode.

Meanwhile, high inflation continued to be the focus area for investors especially with the quantitative easing announced by the Fed raising concerns of a possible spike in crude prices, the BofA-ML report said.