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Domestic Investments

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Domestic Investments

March, 2011

Investment Scenario

The measures initiated in the Union Budget 2011-12 have endorsed sustainability of private investments in the Indian Economy that would take the GDP growth to 9 per cent in 2011-12. The measures that would help revive private investments include directions given to institutions like NABARD and SIDBI to provide financial assistance to the micro, small and medium enterprises (MSME), introducing ‘sugam’ to reduce the compliance burden of small tax payers falling within presumptive taxation, freeing small businesses (with turnover of upto US$ 0.132 million) from formalities of audit, further liberalisation of interest subvention on housing loans and creation of ‘India Microfinance Equity Fund’ of US$ 22 million.

Gregory Ko, ING Investment Management-Asia Pacific, has remained optimistic on investor sentiments in India for the coming fiscal in his recent interview. Considering robust economic recovery as the theme of investment, he believes that sectors including IT, metal and energy would show bright streaks of performance in the coming months.

A study by the marketing research firm Nielsen has stated that 18 per cent of the Indians have rated their individual finance as excellent and 66 per cent of them consider it to be good for the calendar year 2011. Confidence in the economic growth has made Indians optimistic about their personal finances, revealed the study.

Among the top 20 investment attracting states, Karnataka has emerged as most preferred destination with the highest share of 9.1 per cent in domestic investment plans in April-September 2010, as per 'Associated Chambers of Commerce and Industry of India Investment Meter (AIM). Karnataka clocked an year-on-year (y-o-y) growth of 73.8 per cent and attracted investments of US$ 85.49 billion.

Uttar Pradesh acquired second spot with a growth of 75.5 per cent (y-o-y) attracting massive investment plans of US$ 45.14 billion during the period.

Availability of rich mineral resources like coal and ironore along with cheap manpower availability helped Jharkhand rank third on investment radar with total planned investments at US$ 44.03 billion having a share of 6.3 per cent in total investments during the reported period. Gujarat and Orissa stood at fourth and fifth position by attracting investment plans worth US$ 43.19 billion and US$ 42.10 billion, respectively during April-September 2010-11.

As per the AIM assessment report for corporate investments across states and sectors, total investment plans of India Inc increased significantly from US$1,753.7 billion in 2009 to US$ 2,221.4 billion during April-September, 2010.

In terms of sectoral analysis, the study shows that the power and services were the major sectors attracting investment in 2010.

Even going by January 2011’s deals, the IT & IT-enabled services (ITeS) segment has emerged as the largest ranking sector in inorganic strategy. According to Grant Thornton’s January data, IT &ITeS tracked the highest in terms of value, with the industry investing US$ 1.2 billion in M&A over 12 deals. The sector also led the chart in terms of investment from private equity firms.

India Inc is expected to spend around US$ 95.47 billion on information and communication technology (ICT) by 2014, growing at a compound annual growth rate (CAGR) of 10.9 per cent, as per the research firm Gartner. In 2009, the spending on ICT stood at US$ 56.82 billion.

As per a study ‘Indian Domestic Market: A Robust Opportunity,' by Zinnov Management Consulting domestic market is the easiest to penetrate for start-ups and takes the least time to break in, followed by other growth markets and developed markets. The drivers in the domestic market include the fast paced economic growth and the growing software market.

Meanwhile, the Confederation of Indian Industry-Business Confidence Index (CII-BCI) for January-March 2011 increased by 0.5 points to 66.7 per cent as compared 66.2 per cent in the previous quarter. The survey said the sectoral break-up reveals that BCI is highest for the primary sector followed by services and manufacturing.