FDI in 2021 may be more than 2020, these 4 sectors are likely to attract most of it

India received around $30 billion worth of funds through foreign direct investment during the first half of FY21, which was a 15 percent growth over same period last year, while the FDI inflow in January-September period of CY20 was around $43.5 billion, which is a strong number compared to previous periods.

The 80 percent of $30 billion inflow largely came in during July-September period or second quarter of FY21, which was obvious given the destruction in Q1FY21 due to COVID-19 crisis and lockdown measures.

According to data released by the Department for Promotion of Industry and Internal Trade, foreign direct investment equity inflows into India crossed $500 billion milestone during the period April to September 2020.

"The continuity in receipt of FDI inflows is reflection of the firm belief by global investors that India will lead as one of the major growth engine of Asia's recovery coupled with steady state of market reforms which the country has taken since 2000 which includes opening up of various sectors of the economy to 100 percent FDI over last few years," Ajit Banerjee, Chief Investment Officer at Shriram Life Insurance told Moneycontrol.

The services sector was the key beneficiary of the FDI in 2020, followed by computer software and hardware, telecommunications, trading, construction development, automobile, chemicals, and pharmaceuticals.

Computer software and hardware ($17.55 billion), services ($2.25 billion), trading ($949 million), chemicals ($437 million) and automobile ($417 million) attracted the maximum FDI during first half of FY21.

Reliance Jio and Reliance Retail Ventures received the maximum FDI of Rs 1,52,056 crore and Rs 47,265 crore respectively during CY20.

Experts largely feel the sectors which can attract more FDI in 2021 could be Services, IT, Telecom, and Chemicals. Apart from that, Pharma and Automobile segment can also attract flow.

"Sectors like Services, IT, Telecom, and Chemicals are likely to see continued FDI flows," Nimish Shah, CIO, Listed Investments at Waterfield Advisors said.

Amit Jain, Chief Strategist - Global Asset Class at Ashika Group feels India may see incremental inflow in Computer software & hardware, Services, Pharma, Automobile, telecom & chemicals.

"Apart from the services sector, the Finance Minister is expected to keep foreign investment as a key priority in the 'Make in India' initiative, especially in sectors/companies in the areas of manufacturing, electronics and automobiles," Unmesh Kulkarni, Managing Director Senior Advisor at Julius Baer India said.

Ajit Banerjee feels the existing sectors are expected to continue receiving FDI inflows in 2021 as well, along with organised retail sector and affordable housing sector.

Experts expect the FDI flow may easily cross $50 billion in 2021 given the government's focus, especially after COVID-19, to make India a manufacturing hub and announced several measures last year to boost the economy along with exports. Anti-China sentiment also provided a bigger opportunity to attract fund flow.

"This number will keep growing from here-on, as post COVID-19; the entire world has anti-China sentiment, which will be favourable for Indian economy in the ongoing decade of 2030. In my personal view in FY2021-22, we have record inflow of FDI, which may be $50 billion or above," Amit Jain, Chief Strategist - Global Asset Class at Ashika Group told Moneycontrol.

Unmesh Kulkarni, Managing Director Senior Advisor at Julius Baer India also believes the sustained momentum of FDI flow is very much on the agenda of the government.

"The call for attracting FDI flows has been sounded out from the very top, with the Prime Minister himself making a strong pitch to foreign companies to take advantage of the stable tax regime and attractive FDI policies in India, as well as positioning India as a hub for global manufacturing, in the aftermath of the pandemic," he reasoned.

Shailendra Kumar, Chief Investment Officer at Narnolia Financial Advisors looked confident among experts, saying ven in a pandemic hit year, with more than $35 billion during the first five months of the fiscal-2021 suggests that India will easily surpass the figures of $50 billion that it received last fiscal.

Surely, India should be able to attract much higher inflows going forward due to various factors – China plus one strategy, improved liquidity globally, higher FDI in defence sector, various other sectors getting production linked incentives (PLI), he said.

World's leading names in mobile Samsung and Apple (through its contract manufacturer- Foxconn, Wistron, Pegatron) have already started their manufacturing base in India.

Shailendra Kumar feels the per capita income will cross $3,000 mark by FY24 triggering the next round of consumer boom. A mini consumption boom took place in India post-2013 when per capita income crossed critical $1,500 levels.

So, "while PLI will help India improve its manufacturing competitiveness in the global market, a rising per capita income in a large country like India will ensure consistent foreign inflows, he said.

According to Sanjeev Hota, Head of Research, Sharekhan by BNP Paribas, India in 2021 may surpass the 2020 numbers led by further relaxation of government norms and opening up of sectors like defence, media, insurance among others.

However, Atanuu Agarrwal, Co-founder at Upside AI said unfortunately, he was afraid that the fate of FDI flows in 2021 lies in the hands of Jerome Powell (Chairman of Federal Reserve), Christine Lagarde (President of European Cenral Bank), and other central bankers much more than those of PM Modi and FM Sitharaman.

"If India continues to make progress on metrics like 'ease-of-doing-business', we will continue to capture a larger pie of emerging markets FDI flows, especially given the negative sentiment around China. That's the best we can hope for, the absolute amount is out of our hands," he added.

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