What's going on?

India just made it a lot easier for foreign companies to invest in the country � and that�s good news both for India�s economy and the international companies that get to profit from those Investments.

What does this mean?

On Thursday, Prime Minister Modi (who is gradually reforming the�economy � link to overarching piece by HuffPo) announced what the Indian press is calling India�s �Big Bang� moment: huge reductions in limits on foreign investment in Indian companies. The big push is part of the government�s �Make In India� plan � which means it will encourage foreign companies to partner with domestic ones to build things that are sold within India.

For example, two huge deals were just announced between western companies and Indian Railways to build trains in India (both General Electric and Alstom signed multi-billion dollar deals). By allowing foreign companies to take larger stakes in Indian companies, more international companies will want to invest in India � thus boosting India�s economy and, also, building infrastructure that is crucial to propelling India�s future economic growth (factories won�t produce products if railways can�t ship them).

 

Why should I care?

The bigger picture:Lots of companies are focusing on India. Traditional companies like General Electric see big opportunities for infrastructure projects, while internet companies like Facebook are excited by the huge growth potential. According to the Financial Times, foreign companies invested 15% more in India in the first half of 2015 than the same period in 2014. With this week�s reforms, that is set to move even higher.

For stocks: India is fraught with risk, but could be a great opportunity. There is no shortage of risks when investing in India (today�s supportive political climate could change, for example). But genuine growth-orientated reforms and the potential for it to be the world�s fastest growing economy mean that the returns could be worth the risk.