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Fuelled by strong growth prospects and easy liquidity conditions, private sector investors are expected to pump in $1.11 trillion into the emerging markets including India in 2013.
According to the report by Institute of International Finance (IIF), an international lobbying group for financial firms, private capital flows to emerging economies would rise to $1.11 trillion in 2013, a 3.5 per cent growth from an estimated $1.10 trillion last year.
It said the flows are expected to rise further to $1.15 trillion next year.
“The macroeconomic backdrop remains unusually favourable for private capital flows to emerging economies,” the report said.
“...very easy monetary policy in mature economies and the prospect of poor returns is “pushing” money out of those markets...higher growth in emerging economies, combined with higher interest rates is “pulling” funds in,” it added.
The report said private capital flows to emerging Asia including India, China and Indonesia should remain close to their 2011 high of $547 billion.
The share of emerging Asia in total private capital flows should average 46 per cent in 2013 and 2014, just short of the 50 per cent in the previous two years.
“FDI inflows to India will be lifted by the opening up of previously closed sectors and the withdrawal of controversial tax plans, although infrastructural deficiencies and administrative hurdles will remain dampening factors,” the report said.
“The improvement in global sentiment from the third quarter of last year is reflected in revived foreign interest in the region’s stock markets. In India, the resumption of the reform programme is on course to lift foreign purchases of domestic stocks to $21 billion in the fiscal year ending March 2013 from $7.6 billion in 2011-12,” IIF noted.
Revival in FDI inflows
After investing $24 billion in Indian equities in 2012, foreign investors have so far infused $2.8 billion this year.
The report noted that there had been a strong revival in flows into the emerging economies since mid-2012, even though overall investment dipped slightly to $1.10 trillion last year from the 2011 level of $1.08 trillion.
“...overall inflows in 2012 were slightly lower than in 2011, despite a strong pick-up in momentum in 2012 H2, partly driven by the unfolding dramas in the Euro Area (where stresses peaked in late July),” the report said.
However, the report said capital flows to Latin America and emerging Asian economies are now 30 per cent above the level in 2007, before the global financial turmoil.
IIF, which has more than 450 members, conducted a study among 30 emerging economies including India, China, Indonesia, Thailand, Brazil, South Africa, Poland and Hungary.
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