When it comes to attracting foreign funds, the government stresses on the need for foreign direct investment (FDI) that stays for a longer period in the country compared to foreign institutional investments (FII) which is largely made up of investor money which takes flight depending on which market is attractive. The India story is intact with FDI inflow steadily coming in over the years, with the inflow touching new heights in FY12.
Despite the negative sentiments around India, foreign investment is finding way into the country because of special initiatives by several states. States such as Gujarat and Bihar have demonstrated the administrative efficiency with pro-investor schemes and moves which has attracted several large multinationals to invest selectively in India. Almost all states, be it Tamil Nadu, Karnataka, Andhra Pradesh, Chhattisgarh or even West Bengal, are fast holding global investor meets to pitch their state as a preferred investment destination.
The FII flow is completely driven by the attractiveness of the Indian markets. In the backdrop of a falling rupee, the inverse currency parity makes the Indian stock market far more attractive than what it was when the rupee was strong. However, FII money needs to be treated with caution; money comes in and goes out at the same speed on many occasions. Moreover, many a times FIIs exit Indian markets owing to issues impacting them in their home countries. The capital exodus in 2008 resulted in net FII outflows of `54,182 crore because of concerns in the US and Europe on the back the financial crisis.