Government Capex In Infrastructure Seeks To Encourage FPIs, Says JPMorgan's James Sullivan

Incremental government capex in infrastructure seeks to encourage offshore investors, according to James Sullivan, head of APAC Equity Research, JPMorgan. Investments have to be targeted towards particular sectors, taking cues from government policies, he said.

Sullivan estimated that offshore investors need to inject approximately $100 billion to achieve a neutral stance. So far this year, only $10 billion have flowed into the market, leaving considerable room for expansion and significant potential for growth.

"From a fund manager perspective, your index drag is getting worse and worse. As the Indian market continues to outperform and as the market performs, India as a percent of regional indices continues to expand. We expect underweights to be neutralised," he said.

The brokerage sees very strong prospects for idiosyncratic, bottom-up stories driving selective outperformance, Sullivan said. With India controlling its economic path, in a way few Asian nations can, and with a central government committed to strong public policy, the country is in a unique position to attract further foreign investment, he said.

However, continuation of the government policy remains a crucial factor in sustaining investor confidence. Investors remain comfortable with India's deficit spending, Sullivan stated.

Stock and sector selections are crucial, as incremental investments will likely target specific industries. Infrastructure, in particular, is a key sector where government capex and policy continuity play critical roles, he said.

Sectors like construction under infrastructure, and electronics manufacturing are viewed positively by JPMorgan.