Suddenly the FII buying appears to be back with a vengeance. In fact, since the third week of October, the FIIs have infused close to $3 billion into Indian equities. That is a sharp infusion in a short period of time. What exactly is driving the spurt in FII flows. Let us look at 3 reasons why the FIIs are back!
Politics favoring the NDA
FIIs love stability and had been keen on the current political dispensation continuing at the centre. That looked like a fait accompli till the Congress turned the tables in 3 state elections. However, the narrative has changed substantially in favor of the ruling NDA now. The Pulwama attack managed to unite Indians like never before. But, what really mattered was the follow up action. In less than 2 weeks, the Indian Air Force had struck at the core of the terrorist camps in POK. But the bigger victory that India gained from the episode was diplomatic. Even the traditional allies of Pakistan like the US, China and the Islamic Middle East did not say a word in favor of Pakistan. It was this fear of isolation that forced Pakistan to take the high moral ground and send the captured Indian pilot back. In the entire exercise, Modi scored a moral and, perhaps, political win. The decisiveness was shown, the diplomatic phones were worked and South Asia avoided the prospects of a dangerous war between two nuclear nations. That sagacity should work in favor of NDA.
FIIs like the economics too
If FIIs liked the way Indian politics is shaping, they find reasons to rejoice on the economic front too. Inflation has remained low and the manufacturing sector is seeing a smart revival. The twin challenges of the Indian rupee and oil prices appear to have a semblance of stability now. FIIs are also impressed by the fact that the overall revenue growth of Indian corporates and the pressure in the last quarter was more due to pressure on the bottom line. That is not likely to be the scenario in this year.
India could also be a TINA story
The TINA factor is all about there being no alternative. That may be a tad presumptuous, but FIIs are beginning to see the logic. Even at annual growth rate of just 7% this year, India remains the only large economy to show double digit nominal growth. Unlike other economies which tend to be cyclical, India is naturally de-risked. India does not have the commodity dependence of Latin America or the China dependence of South East Asian economies. India has the advantage of a huge and growing domestic market, which should be able to absorb most of the global shocks. The TINA factors, perhaps, best explain why FIIs are swarming into India. If favorable politics combines with favorable economics, FIIs may be laughing all the way to their banks. For that we have to wait for elections! ©