Deepak Shenoy

Liquidity, Not SIPs, Drives Foreign Investment Inflows

I disagree with the notion that SIPs and domestic equity investors are what creates a negative in that foreign investors will leave. If all they were looking for is liquidity, then it's fine, they have it now, and they're leaving; but it's only a market that gives you the freedom and liquidity to leave that attracts future inflows. "Stopping SIP" is a weird way to say that we'll reverse the flows - it just almost ensures that new flows won't enter. Foreign investors owned most of the non-promoter shares of Indian companies this far. That means when we spend and our companies earn a profit, that profit goes mostly to investors from abroad - there's no reason why India shouldn't want that share too, especially as we get richer. There are many companies where a "premium" was given primarily due to lack of liquidity. Promoters owned too much, and the rest was with a controlled set of people, including FPIs, and those stocks wouldn't hurt too badly when markets fell. This includes MNC companies who trading at very rich premiums compared to their own home countries. That stuff, it should and will dissolve over time. The illiquidity premium shouldn't be a thing, but it is, and it won't last very long. Investing in India is what's made a lot of Indians richer. They spend when they feel richer, and that promotes more of our own economy. It's the combination of investment returns and spending that will drive our GDP (we aren't export oriented) and in fact, it's our consumption that should drive more production domestically though it's not yet meaningfully happened yet. You could also put the argument that if India would please stop consuming stuff and instead focus on exports we will do better. This sounds good - send the best produce abroad, and live with mediocre stuff domestically and we will earn more forex. I think we're in a better zone than than that - we can produce for us, and if we focus more on that versus importing for our use, we will do well. And that also means investing domestically. Over time, arguments will come that any progress is bad for something that exists. Think about it. If India smokes less in the process of getting healthy, what happens to the tobacco companies? To the state taxes on tobacco excise, to the tobacco farmers? Bad only. More GLP-1 means less sugar usage. Bad for sugar farmers, for all the political stuff. But it's more healthy for us. More EV means less petrol/diesel and thus, less state taxes collected, and less central excise taxes. But we'll all understand its better for the environment and for eventually lower crude oil imports etc. More SIP isn't bad for us even if it allows more free outflows, in the longer term. It creates a richer India and already has, and the benefits of that will mean both greater longer term inflows and more domestic participation in an environment that requires investment.