Possibilties of India Becoming a Destination for Arab Investments
Need The Dough, Vol. 2, No. 1, pp. 58-64, April-June, 2007
Posted: 13 Nov 2010
Date Written: 2007
Recent stock regulations towards improving transparency, efficiency and low transaction costs have made India an attractive investment destination. With the Indian currency becoming stronger in the last two years, investments in India will not expose the FIIs to a dollar currency risk. Indian software companies have developed a strong brand identity of their own and are no longer dependent only on American companies. Even though they are still the largest clients, many Indian software companies have diversified their operations to other countries. With the Indian government moving towards financial liberalization, permission for setting up joint ventures and equity investments may become less cumbersome.
The service sector now contributes 50 percent of the Indian economy and it is becoming more independent, with the external influence on the stock market becoming less pronounced. The Indian stock indices, the Nifty and the Sensex, on the other hand, have bounced back from their lows, and in 2006 have crossed the peak attained earlier along with setting new records. The investable part of the Indian economy has an internationally competing workforce, is developing competitive products and services. For the Arab economy, largely oil-dominated, any increase in crude oil pushes up the surplus for the Arab countries. The Arab investors, looking to diversify their portfolios, can always hedge their investment in terms of oil and non-oil assets.
This paper argues that India may be able to attract large funds from Arab countries, if it is also able to offer Islamic products based on the Sharia for a broader investor base. If US and UK can have Sharia S&P500 index, mutual funds in India can develop and promote Sharia based index as well. Furthermore, they can develop an investment strategy based on certain Islamic principles (for example not investing in alcohol based companies) which would help in attracting funds. India's exports to the Arab world in 2005-06 stood at $17billion. Excluding oil, imports from the Arab world touched $11 billion in 2005-06. Investment flows to the Indian equity market will enhance the investable resource augmenting the growth of Indian economy.
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