Everyone wants a slice of the India pie. The reasons are not far to seek. India has just achieved an 8 per cent growth rate for the year so far, making it almost certain that growth in the full financial year will exceed the forecasted 7.5 per cent. That will take average growth for the 2003-06 period to 7.6 per cent, making India one of the fastest growing economies of the world. Significantly, this growth is broad based and has been achieved with moderate inflation and without any serious macro-economic imbalances; and despite sky-high international oil prices, a faltering monsoon, change in government, and concomitant slowdown in reforms. The country is witnessing a 40 per cent rise in investments; and a 53 per cent growth in mobile phones, making India the second largest global market. The stock market just pierced through the 9,000 mark.

International credit rating agencies like S&P and JCRA have been upgrading their ratings for India. FDI and FII inflows have seen a rapid rise. India has displaced the US as the second-most favoured FDI destination in the world after China in the AT Kearney FDI Confidence Index for 2005. Foreign investors are attracted by prospects of high economic growth, high profits of India Inc. and the high earnings of the Nifty and the Sensex. India Inc.'s profit growth rate is in the range of 13-15 per cent. The BSE Sensex is offering annualized returns of 41.74 per cent and the S&P CNX Nifty 35.15 per cent. Moreover, equity diversified mutual funds have been outperforming both the Sensex and the Nifty. Compare this to the annualized returns of 5.55 per cent being offered by the NASDAQ and 18.48 per cent by the MSCI Emerging Markets!

Thus begins 'The India story'. This article tries to give a feel of the sense of excitement surrounding it. Indeed, this excitement is the India Story.

India's chief advantage over countries such as China is that it offers investors better trained managers and enhanced corporate transparency in the private sector. It also boasts the oldest stock market in Asia (Bombay Stock Exchange is 130 years old) and the largest number of listed stocks (over 7,000). Its jurisprudence is more developed and courts are reliable arbiters of investors' rights.

Investments are being made across a wide range of sectors including IT/ITeS, banking, pharmaceuticals, manufacturing, software and pharma outsourcing, and in the automotive segment; newly deregulating industries such as cellular telecom, broadband, airlines and port infrastructure.

Foreign Institutional Investors are here to stay. FIIs inflows have crossed $10 billion this year, much more than the $8.4 billion invested last year. In November alone, these investors bought $780 million worth of shares. Global venture capital (VC) funds are sharpening their focus on India. According to a report from TSJ Media, that tracks VC flows in the country, venture capital and private equity firms invested over $1.1 billion in 66 Indian companies during 2004, significantly higher than the $774 million for 2003.

Japanese investors have recently emerged as major players; their contribution through India specific funds is expected to cross $1 billion soon. Nomura Asset Management Co. - Japan's biggest fund manager - launched its Indian stock fund in June 2005. UK based private equity investor Actis is raising funds exceeding $400 million.

Among other big stories is the $12 billion investment plan by Posco on an iron and steel project in Orissa. Private equity investors are increasing their bets on India. That includes big names like US firms Blackstone Group, Carlyle Group and General Atlantic Partners; Japanese companies Suzuki, Mitsubishi, Toyota, and Britain's Actis Partners among others. Local firms such as ICICI Venture Funds Management Ltd. and Kotak are also stepping up investments.

Until the end of June, $1.2 billion in divestments, or exits, had already taken place. Last year's largest investment came when General Atlantic and Oak Hill Capital bought 60 per cent of Delhi outsourcing company GE Capital International Services (GECIS) from General Electric Co. for $500 million. Big stories such as the $1.5 billion by British telecom giant Vodafone Plc in the Bharti Group, involving a buy out of Equity fund Warburg Pincus' stake has increased the sense of excitement surrounding the India story.

Where should India strengthen further? What problems need to be faced? The RBI has cautioned that large capital inflows and changes in exchange rate and interest rate have affected stability in the equity market. Second, any further rise in oil prices can seriously affect growth prospects for India as well as the nascent recovery of the world economy. Third, interest rates are showing signs of hardening internationally. The ECB recently raised rates by 25 basis points, the first hike in five years. This will make investments in India less attractive. Fourth, while India scores over many countries as a destination for foreign investment, China outshines India by far. Carrying forward the process of reforms, reducing bureaucratic red tape and improving infrastructure would remain important factors in maintaining growth. IT and more recently, the BPO sectors have been key drivers of growth. The next big story for India could very well be the pharma and textile sectors. However, competition from China might make these plans difficult to realize.