Better Indian Investment Climate Sets the Stage for More Outsourcing

Jacob Cherian February 21, 2010

News reports say that the investment climate in India is likely to get better with many more firms projected to move toward capital markets in order to raise funds via issuances of debt and equity – this will take place in both overseas and domestic markets, according to the Prime Minister’s Economic Advisory Council (PMEAC). Nonetheless, foreign portfolio investments are expected to slow down toward the second half of the fiscal year 2010.

With the economic climate witnessing a foreseeable change for the better in India, major players from outsourcing locations are already getting ready to take advantage of higher volumes of business in India. Despite controversy over the dominance of IT outsourcing in India, outsourcing giants like Infosys, Wipro and Tata Consultancy Services are well poised to make expansions not just in India, but also in Europe and nearshoring facilities in Latin America and Brazil.

In its review PMEAC said, ‘‘ Companies who have lined up internal sources of funds and/or equity issuances are likely to increase their credit lines once capital expenditure commences in the next fiscal, for which they seem to be prepared at this point," reports times of India.

The report stressed that the investment climate in the Indian economy is likely to see a drastic recovery in credit growth. Concurrently, issuances of equities and debt are likely to be observed in overseas and domestic markets.

PMEAC chairman C Rangarajan said in a statement, "We are making an initial estimate that the economy would grow by 8.2 per cent in 2010-11 and by 9 per cent in 2011-12.” In the present fiscal year, growth is expected to tag at nearly 7.2 percent as projected by the Central Statistical Organization. This projection is higher than the PMEAC’s earlier forecast of 6.5 percent in October.

The PMEAC review underscored that the credit expansion in the latter part of 2009-10 was more robust at Rs.165,000 million in comparison to Rs. 83,700 million in year ago figures. Debt and equity from the present financial year, until January 2010, capped more than Rs.2,39,000 million. This figure is nearly double that of the corresponding period in the year. Moreover, issuances of capital raising instruments like debt and equity were robust in October to January.

At any rate, the foreign fund flows into stock and bonds in the latter half of the present fiscal year have dropped momentum to $9.2 million, versus the $17.9 million during the first half of the year.

In general, portfolio flows are investments that are made by FIIs, offshore funds, and investments in GDRS or ADRS . The total portfolio flow in the fiscal year 2009-10 is projected to be close to $27.2 billion. In the period 2008-2009, portfolio flows were in negative territory at -$14 billion.

Jacob Cherian writes for SourcingLine, a leading provider of directories on top seo companies and mobile application developers