‘India receives $13 billion foreign capital inflows’

Goldman Sachs India Securities said India has already attracted $13 billion net foriegn funds so far this year and expects the trend to continue. “India has already attracted net capital inflows of about $13 billion so far this year which contrasts with net outflows of $11 billion last year and I expect that trend to continue,” the US broking firm’s Chief India Economist Prachi Mishra said in the latest episode of the firm’s Exchanges at Goldman Sachs podcast.

She said foreign investors’ appetite for Indian assets has swelled this year, buoyed by Prime Minister Narendra Modi’s decisive general election victory in May.

Given the government’s strong majority in Parliament, asset managers are anticipating sweeping structural reforms in areas like land use and labour to boost growth, Mishra added.

While the Central Bank of India recently cut interest rates to stimulate the economy, the country’s longer-term growth is underpinned by changing demographics.

According to Mishra, average GDP growth in India over this decade has been about 7 per cent a year, and three-quarters of that is attributable to consumption.

“India has a large and growing middle class with increasing aspirations and this middle class wants to consume and save less,” said Mishra.

The Indian government is likely to put on hold a plan to raise the minimum public shareholding in listed companies, a source with direct knowledge of the matter said, amid concerns it could force the issuance of billions of dollars worth of shares.

Indian stock markets fell sharply when Finance Minister Nirmala Sitharaman announced the proposal to raise the minimum public shareholding in companies to 35% from 25% in a budget speech last month.

“We may not notify this year the 35 per cent minimum shareholding norm as we have got some representation on the issue and we will look into it in detail and understand the viability of such a proposal,” the source, who is dealing with the matter, told Reuters.

The source could not be named because of the sensitivity of the matter.

The rule if implemented could result in companies having to offer approximately 1 trillion rupees ($15 billion) in shares currently owned by controlling shareholders to the public, analysts have said.

The government is also looking at a number of other issues such as foreign portfolio investors’ tax concerns, the source added. The government’s proposal to increase taxes on those with annual incomes of more than 20 million rupees has rattled many foreign portfolio investors (FPIs).

Foreign investors have been urging the government to reconsider its decision, arguing the move will hit the competitiveness of Indian capital markets.

“On the FPI tax issue we are putting our heads together,” the source said, adding that the Prime Minister’s Office, his Economic Advisory Council and the government’s think-tank Niti Aayog are looking at the issue.

“The economic affairs department has been asked to do a study on the issue,” the source added. “We are also mulling an investment advisory council with representations from government and businesses for early resolution of issues faced by investor and business community in the country.”

Meanwhile, Amazon.com Inc is in talks with Reliance Industries Ltd’s retail unit to buy a stake in India’s biggest brick-and-mortar retailer, two sources with knowledge of the talks told Reuters on Friday.

Amazon’s massive online presence could help bolster Reliance’s consumer and private labels business. More importantly, a potential partnership will help the duo counter Walmart, which last year invested $16 billion in India’s Flipkart, in their battle for a bigger share of India’s fast-growing e-commerce market.

In late December, India modified rules around foreign direct investment (FDI) in e-commerce, creating additional hurdles for companies such as Amazon and Flipkart, and giving companies such as Reliance an edge.

Amazon had made the proposal to Reliance for the partnership, but it was not clear whether a deal would materialise, said one of the sources.

The second source said Amazon had been pondering a proposal to purchase an up to 26 per cent stake in the Reliance unit since at least February.

“For Amazon, it is about neutralising a major rival and allowing itself to grow,” said the second source, who added the company envisions helping Reliance’s roughly 40 brands and grocery products go online.

Further details of the possible deal, first reported by India’s Economic Times newspaper on Thursday, were not immediately clear. Amazon and Reliance did not immediately respond to requests for comment on Friday. Amazon had on Thursday declined to comment, while Reliance had said it would make any disclosures to stock exchanges as and when necessary.

Reuters