Emerging big in a market near you

economictimes.indiatimes.com:

India is on course to displace Taiwan as the second most-weighted emerging market in the MSCI EM Index. The export-oriented Chinese and Taiwanese economies are facing the effects of a global trade slowdown, which in India's case is cushioned by domestic consumption. This widens the funnel for foreign investment in Indian equities through higher allocations by passive funds.

The increased leverage on account of higher equity valuations should strengthen private capex, putting future growth on a more stable footing. The likely inclusion of Indian government bonds in global indices would increase foreign participation and free up more domestic capital for the corporate sector. But a wider foreign debt pipeline will have to address inadequacies in settlement systems and align rules for repatriation and the capital gains tax regime with global standards.

Robust capital flows are a prerequisite for sustaining India's current growth rates. GoI has been shoring up growth through a capex push funded mainly by domestic borrowing. This will taper off as private investment revives and corporate credit demand picks up.

So far, the private sector is being capitalised by the equity markets as government borrowing squeezes resource provisioning. A private sector capex cycle should not have to run into higher borrowing costs if the investor base for both equities and debt is broadened. More foreign debt also improves productivity by facilitating privatisation.

This, in turn, is aided by strong equity inflows that provide viable exit options for GoI. The increased visibility offered by India's growing heft in global equity indices provides an opportunity to plug itself deeper into the international capital market. The approach towards