WHY MARKET IS NOT JUBILANT ABOUT FDI CAP REFORMS?
By Ruma Dubey
400 points or 300 points up? That is how many expected the BSE to rise, while reacting to the slew of sectors opening up through FDI. But the markets, Quixotic as ever, has shown a much muted response and the question dogging everyone is, “aakhir kyun?”
The Govt lowered FDI cap on 13 out of the 20 sectors and this included 100% FDI, that too 49% on automatic approval route for telecom. It also lowered FDI cap on defence but with caveats. The contentious insurance sector, which at one time had caused a storm in the Parliament on grounds of opening up, today, did not even evoke a whimper on the streets. It also allowed 100% FDI in asset reconstruction and courier services. Retailing also, which had caused a major brouhaha, saw a hike in FDI, 49% on automatic route and 49% to 100% via FIPB approval. Well, multi brand retail and civil aviation remain out of this generosity.
With the Govt conveying through this “opening up” that it is indeed serious and wants to get processes simplified and make India an attractive destination, why then has the stock market reacted with a mute optimism and not jubilation?
The first and foremost reason – foreign investors did not need convincing about the potential of India but they do not need a lot of convincing about such decisions seeing the light of the day. Also, the Govt seems to be in a tearing hurry to push through biog ticket reforms, with an eye on elections. The Govt has the track record of backtracking on many issues, especially when taken in haste and that remains a worry. Foreign investors are also more worried about our domestic economic issues. How can FDI alone cannot prop up the economy? Also getting approvals through FIPB remains a contentious issue for many and that automatically means more delays. The current Jet-Etihad deal is one such example. Automatic approval on 49% FDI is being allowed in Petroleum and natural gas refining but with the sector sitting on pricing instability and rules not yet clear about petroleum retailing, few would like to bite the bait. Yes, 100% FDI in telecom is great news but not every MNC is going to come calling immediately as the sector continues to remain shrouded under corruption scandals, policy flip flops and existing operators are battling long drawn court cases. It is good that FDI is being allowed but it does not mean money and companies will start pouring in from tomorrow. It will take a year from now, assuming there are no delays, for any of this to materialize.
What the market wants now is news on propping up the domestic sector. News of projects getting cleared, infra projects getting a fillip, land Bill and some boost to manufacturing sector; these are some news which could bring in cheer which in turn could get reflected in jubilation on Dalal Street. For now, marketmen are just observing not reacting.
The biggest overhang on the market is the scheduled speech by Bernanke today and tomorrow. The market is looking for clues on easing of QE and that remains currently the dark cloud. Also if we are talking about QE easing, which anyway has to start one time or the other, foreign investors would also prefer to wait and watch before making any commitments, in any emerging market for some time now.
For now, more than Chidambaram, it looks like Bernanke controls the Indian markets.