Foreign Investment Flows Into India Again

As India's economy recovers from the global financial crisis, foreign investment is flowing back into the country, and stock markets - as in many other countries, are again buoyant.

There has been good news in recent weeks for investors who watched stock markets decline sharply amid the global financial crisis. India's benchmark stock indexes have more than doubled in the last six months, driven in part by foreign investors who are returning to the country.

Foreign investors had pulled out billions of dollars last year as credit dried up.

But the trend has reversed. From April to June, India received about $15 billion in foreign direct investment, the highest since 2007.

Analysts say foreign investors are motivated by growing confidence that the global recovery will be driven by countries like India and China.

Rajesh Jain, a stock market analyst in Mumbai, says there is widespread optimism that India's economy, which is largely driven by domestic demand, will return to high growth rates faster than other countries.

"Naturally, when the risk appetite has come back, and the risk aversion has disappeared, India is getting a better share of investment," Jain said.

But some analysts are skeptical whether the buoyancy in India's stock markets is sustainable. Among them is Prithvi Haldea, who heads New Delhi-based Prime Database, which tracks the stock market. He says the economy is accelerating, but there is little to justify the huge rally in the stock markets.

"This is totally unsustainable," Haldea said. "The markets have obviously gone much ahead of the fundamentals. It is a combination of future expectations and too much of liquidity again back in the market."

Analysts also say that any setback in the global economy could see overseas investors pulling out quickly again. But for the time being, investors, both domestic and foreign, are undeterred by such worries, and are putting their faith in the Indian economy.