The global economic crisis has hurt India’s confidence, leaving the country wary of further outward foreign direct investment (OFDI). Instead of looking outward for growth, will India turn inward to keep the economy and country related exchange traded funds (ETFs) going?

India’s OFDI until recently outpaced that of other emerging markets, but it hit a roadblock when the global financial crisis began.

India’s OFDI recovery will rely upon the revival of global and domestic growth, improvements in corporate profitability and easing of financing from banks and equity markets, writes Jaya Prakash Pradhan for Business 24-7. Before 2008, Indian OFDI was driven by global growth, business opportunities and increased competition.

The factors that have impeded OFDI include:

• The global and domestic slowdown has led to diminished business confidence, reduced consumption and sluggish investments, which has halted overseas and domestic expansion of Indian companies.
• India adopted a cautious lending policy during the credit crunch, which led to postponements in domestic and overseas projects.
• The global downturn had a negative impact on Indian equity, money and foreign-exchange markets. The depreciation of the Indian rupee against the U.S. dollar last year led to losses in export-oriented Indian companies that had long-term forex derivatives.
• A slump in export earnings affected companies in software, gems and jewelry, leather, textiles, auto parts, pharmaceuticals and food processing.

Overseas acquisition trends in January-June 2009 compared to same period last year has declined by 65%, or from $8 billion to under $3 billion. The drop in Indian investment is widespread among recipients. In host regions, the decline in Indian brownfield investment was most notable in the developing world.

India’s overseas investments began with information technology and related service sectors. It then spread to areas of manufacturing and finance, India One Stop reports.

• WisdomTree India Earnings (EPI): up 56.2% year-to-date

• PowerShares India (PIN): up 50.4% year-to-date

For more information on India, visit our India category.

Max Chen contributed to this article.

Tags: Asia, Emerging Markets, EPI, Global ETFs, India, PIN