MUMBAI // Financial markets in India are booming as more money from foreign investors flows into the country following the government's economic reforms.
Foreign institutional investors (FIIs) poured more than 190 billion rupees (Dh13.2bn) into India's equity markets last month, the highest monthly figure since February, according to data from the securities and exchange board of India.
The Sensex, the Bombay Stock Exchange's benchmark index, closed at 18,762.74 on Friday after reaching 17,972.54 at its highest point for August. Foreign investment flows and positive sentiment are also helping the Indian rupee to strengthen.
The rupee hit a five-month high of 52.86 against the US dollar on Friday, gaining almost 5 per cent last month, after slumping to a record low of more than 57 to the dollar in June.
Tough austerity steps in Spain have also helped to boost Asian markets.
"If [the] rupee further strengthens, which we hope it will with the steps the government is taking, we expect it could even touch 50 in the next two to three months or four months," said Arvind Mayaram, the Indian economic affairs secretary.
A wave of economic reforms were announced by the Indian government last month, including opening up the retail and aviation sectors to more foreign direct investment in an effort to attract more capital and boost the economy.
The government also unveiled a financial restructuring package for the power sector. There are hopes among investors that there are more measures to come.
In recent months, economists have cut their growth forecasts for India, partly because of the lack of action on policy reform. The ratings agency Standard & Poor's also warned the country was in danger of losing its investment grade rating and being downgraded to junk status. India's economic growth slowed to 5.5 per cent in the first quarter of the financial year.
"India's outlook in the near to medium term will be shaped by successful implementation of these measures," analysts at Crisil, an Indian ratings and research firm, said in a recent report. "The immediate and much-needed positive impact of these measures will be on investment climate and business confidence."
The Centre for Monitoring the Indian Economy, a think tank, has predicted FII inflows will strengthen to US$11.2 billion (Dh41.14bn) in the second half of this financial year, as major FIIs start to look at India as an attractive long-term investment destination.
The reforms announced by the government may have had a positive impact on business sentiment but the announcement that the retail sector will be opened up to up 51 per cent foreign direct investment has been opposed by many Indians. They believe the reforms could be detrimental to small, family-run retail businesses and India's poor.
Still, Manmohan Singh, the prime minister, reiterated at the weekend that the government was set to go ahead with the reforms because of the benefits they would bring to the economy.
Like other nations, India has been hit by the crisis in Europe, the frosty economic outlook in the United States and the slowdown in China, as well as high inflation.
"Any deterioration in investor risk appetite is likely to lead to a renewed depreciation of the rupee," said Andrew Kenningham, a senior global economist at Capital Economics.
