FPI Inflows

Why they could now make a serious comeback…

Between October 2016 and January 2017, Indian markets saw FPI outflows to the tune of Rs.80,000 crore ($12 billion). These outflows were driven by the fears of demonetization and the expectation of a Fed rate hike. FPIs were also worried about corporate numbers. All that looks set to change…

There is a return of FPI flows… 

In the last 10 sessions since the beginning of the month of March, the FPIs have infused nearly $1.5 billion into Indian equities. Of course, this fades when compared to the $12 billion that had earlier moved out of India. But then the trend towards inflows is evident. With most of the uncertainty behind us, the FPIs may have the left-out feeling. This may be the beginning of the trend of FPI flows returning into risk-on economies like India.

Political continuity is the key… 

One thing that will surely gratify the FPIs is the decisive win that the BJP recorded in the crucial UP elections. It was almost seen as a mandate on demonetization. What the result has revealed is that people are more than willing to support the government on genuine reforms that will make a difference to them. That should propel the government to make a move on sensitive legislations like the Bad Bank, labor reforms and land reforms. For FPIs the reforms process is now irreversible!

Limited risk of US hawkishness…

To be fair, the US Fed has been hawkish in that it has guided two more rate hikes in the calendar year. However, that was largely factored in. With the RBI likely to maintain status quo on rates, at least till June, the rate differential will not be a great concern for the RBI. Also, FPIs will now be convinced that the tail risk of any future US rate hike is unlikely to be as bad as it was in the aftermath of December 2015. FPIs also strongly believe that the US hawkishness on rates will be largely tempered when spending is triggered off by tax cuts and an investment cycle is triggered by infrastructure spending. With a clearer trajectory on Fed rate action, the FPIs will look at more risk-on opportunities to add alpha to their portfolios. This may just be the beginning.

FPI rupee bets went wrong…

Most FPIs are getting the left-out feeling. Between November and March, Indian markets have rallied sharply and most FPI have missed the bus. The reason is that their bet on the rupee went sorely wrong. The normal bet was that the INR would weaken further to 72/$, which led to the selling. The idea was to enter the Indian market at 72/$ level to play the stock appreciation as well as the INR. With the INR coming back to 65.5/$, there is likely to be a rush of FPIs into India. This could be the big trigger for Indian markets! ©

You can ask us your stock related questions with #AskReligareOnMarkets via our Twitter channel @religareonline

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