The US financial crisis, which has sent tremors around the world, is likely to slow down foreign institutional investors' investment in India's equity markets, even as debt segment could witness positive response from a section of such investors, a top finance ministry aide said on Tuesday.

As far as foreign direct investment is concerned, it would depend on fundamentals of the economy which have not altered after the US financial turmoil, Chief Economic Advisor Arvind Virmani told PTI.

Virmani expected around nine per cent growth of the economy over the next four years and said that despite global uncertainty, there is a solid basis for the growth of Indian corporates, given their strong base.

"To the extent that Indian companies, whether for the global operations or for their domestic operations, were depending on equity flows, those clearly would be affected in the rest of this year, at least for the next three months," he said.

Elaborating, he said the US Federal Reserve has increased the liquidity to meet the crisis, but even after that demand for money has gone up because of the turmoil.

"So risk adjusted rate was even higher. It had gone back a little before this stage of the crisis, but it went up again," Virmani said.

"Obviously the cost of global funds and flow of global funds would be affected. "So that effect is there," he said.

However, when it comes to the debt market, the effect would depend on the perception of investors, the chief economic advisor said. 

For example, when NRIs think of savings given bigger uncertainty in markets they live in, Indian debt markets could
turn out to be more attractive. "In that sense, it could have positive effect," he said.

This is also true for FIIs, who have been investing in Indian markets and are familiar with it, he said.

However, the effect on debt market could go either way, as FIIs who have not been investing in India may not be as comfortable with the country's debt market as well.

"There are positive and negative factors for the debt. We will see it in the next few months how these numbers come out," he said.

According to Securities and Exchange Board of India figures, FIIs have net sold every day of the week ended September 19 and net purchased every day, except for September 18, in the debt segment.

For the whole week, FIIs net sold $1,158.80 million in equities and net purchased $41.60 million in debt.

This global financial crisis is the worst since the Great Depression of 1929, creating a lot of uncertainty in world markets. "That uncertainty will affect us also, given that we are more globalised now," Virmani said.

There are a lot more companies which are looking outside, which are planning in a global way, so these company's would be affected by this uncertainty.

It is a difficult situation, but there is a strong basis for the growth of Indian companies.

"Given that Indian companies have fairly strong base and given that one is still confident that in the next four years Indian economy will grow at around nine per cent, there is still strong basis for growth of Indian companies," he said.

Global uncertainty would not affect us directly and as strongly as say companies in the US, he said.

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