The Hindu Business Line : Portfolio inflows may slow down

THE climate for foreign portfolio investment in India is not good because of the hardening interest rate in the US and negative impact of increasing oil price on global economic growth, said Mr Alan Jacobs, senior international economist & strategist at AMP Capital.

The big picture for foreign portfolio investment in India is "less positive," felt Mr Jacobs. Along with India, other emerging markets too are likely to be adversely affected by the worsening economic climate.

Mr Jacobs, who is in India on a 6-city tour to share his views with corporates, linked the bleak outlook for emerging market investments to the hardening interest rate in the US. He also drew attention to impact of the rise in oil price.

He forecast that the pressure exerted by oil prices would bring down the global growth rate from about 4 per cent to 3 per cent.

The mix of tighter money and the possibility of an economic slowdown made emerging markets look riskier. The result of these developments is that foreign flows to emerging markets may slow down, and would "possibly even reverse," said Mr Jacobs.

Even as emerging markets seem riskier, Mr Jacobs said that fears of another Asian crisis if China's growth slows down were misplaced. He expected China's growth rate to be a little bit below the trend for a while, at about 6.5-7.5 per cent.

AMP Capital runs an Indian infrastructure fund that has a corpus of $100 million in association with the Asian Development Bank.

While Mr Jacobs was upbeat about India's growth prospects, he felt that the country's regulations presented a problem.

The challenge in infrastructure development is that in many cases it involved a creation of a monopoly with attendant problems, he felt.

In a number of emerging markets, the balance had been too much in favour of consumers, he added.

In this situation, the regulator's key challenge was to allow a fair return on capital, said Mr Jacobs.

The alternative would be underinvestment in infrastructure, he added.