Investment Guide

An investment guide can be defined as a complete guide for putting money in certain sectors of the economy, be it for domestic or international investors. The investment guide for a certain country will depend on various parameters of the economy ranging from the banks and the banking services of the country, policies under taken by the home government with respect to foreign and domestic investors and most importantly, the situation of secondary markets in the home country.

In the context of India, major financial market changes have occurred in India since the post 1991 liberalization period. This was primarily driven by a large number of private players entering the banking and financial services sector in the commercial banking and asset management business. Adding to it, the many deregulations implemented by the government and the openings in the insurance sector with stiff competition among the private players have ensured that interest rates have not increased too much in that period. The capital market regulators, namely the Securities and Exchange Board of India (SEBI) and the Insurance Regulatory and Management Authority (IRDA) have been given more independence by the Union Government. Besides, the Public Sector Banks, due to its sheer reach to the rural areas of the country and still managing the majority of businesses in the banking industry are being encouraged to run on professional lines and many have already been listed on national stock exchanges.

These should be good indicators of the climate for investment in India. With the economy consistently exhibiting above 5%-6% growth in the recent years, any investment guide based on the above factors coupled with some others such as flows of Foreign Direct Investment (FDI) and situations in the capital and secondary markets would rate it as profitable investment destination in the years to come. There has been a rapid development in the Finance Institutions in India and many Non Banking Finance Companies (NBFC’s) have come up in the recent years seeking registration with the Reserve Bank of India (RBI). Secondary markets previously facing tight controls by the government with limited liquidity have been revamped with the introduction of new money market instruments and the setting up of the Discount and Finance House of India (DFHI). DFHI is the principal agency for developing the secondary market for money market instruments and Government of India treasury bills. Another agency set up to monitor the secondary market has been the Securities Trading Corporation of India (STCI).

In the front of the capital market, private mutual funds have been permitted and buy back shares have been allowed. Mutual funds now come under the SEBI (Mutual Funds), Regulations, 1996. With the growth in the securities markets and tax exemptions allowed for mutual fund schemes, it is only natural that mutual fund units are starting to become popular. That India’s stock market is showing signs of improvement are evident from the fact that there are around 25 million shareholders in the country and many of them actively trade in stocks.

After 1991 and the commencement of reforms, the openness to foreign investments was also confirmed with most of the Foreign Direct Investment (FDI) now allowed through the automatic route. However, those in excess of the 51% limit in foreign equity investment are required to get the prior nod from Foreign Investment and Promotion Board (FIPB) approved by a Cabinet Committee. As a move to allow more FDI flows into the country, foreign brokers are now permitted to facilitate operations on behalf of Foreign Institutional Investors (FII). This is also a positive investment guide for India. Foreign ownership in many companies has been raised from 51% to 74% as per the latest Budget Announcement of 2007-08. Non-Resident Indians and Overseas Corporate Bodies have been allowed up to 100% ownership in and certain industries. Income tax exemptions on corporate income for both domestic and foreign companies are also in place according to the most recent figures.

An investment guide will also lead you to the developing erstwhile Soviet Republics such as Kazakhstan and Tajikistan, which are showing up good investment opportunities to invest in those countries. These central Asian countries are rich in natural resources and chemicals and metals such as copper, zinc, bauxite, gold, silver and uranium. Going westwards, the Baltic regions of Romania and Bulgaria are also giving enough investment opportunities in the real estate sectors with property interest rates falling. According to a World Bank report of 2004, Slovakia experienced the most dramatic change in investment climate in the world for that particular year. Property rates can also be taken as an investment guide to invest in real estates, which are throwing up a profitable venture in the Gulf city of Dubai.

In conclusion, it can be stated that a favorable investment climate influenced by strong investment guide parameters such as banking services, FDI flows, secondary and capital market flexibility is rendered useless unless a macroeconomic stability with sound fiscal and monetary policies is ensured by the government. These factors, along with lack of a stable political situation can have an unfavorable effect on the stock market of the country in question, which will anyway ward off potential foreign investors.