In recent months, India has received the most FII inflows among any developing economies. With the Indian economy on an upward trajectory, Foreign Institutional Investors(FII) have invested more than $16 billion in the first 16 weeks of FY24.
According to NSDL statistics (June 16-30), FIIs were net buyers of Rs 13,300 crore in financial stocks, Rs 2,366 crore in capital goods, and Rs 3,050 crore in auto stocks. FIIs continued to be pessimistic on IT equities, with net selling amounting to Rs 393 crore.
The capital goods sector also witnessed $612 million in buying, the greatest inflow in the sector in the previous two years. A significant portion of this flow has gone to aerospace and defence stocks.
Reasons why FIIs are investing heavily in the Indian equity market
● Strain in China’s economy
Investors are shifting away from China’s financial turmoil as geopolitical tensions grow, as per reports over $9 Billion in Indian equities purchased by international institutional investors in the first quarter of FY24. Relations between the United States and China have grown worse in recent months. The United States has increased sanctions against critical Chinese industries, including chip manufacturing.
● Federal Reserve tightening.
Despite India’s high interest rates Foreign investors purchased equities in emerging nations, especially India, on the assumption that the US Federal Reserve would stop hiking interest rates. The Reserve Bank of India had previously decided to stop rate rises in April, which encouraged investors. The US Federal Reserve also agreed to halt rate rises in June, matching market forecasts. FPIs didn’t want to lose out on the opportunity to invest in the expanding Indian market, so they shifted in to take advantage of the situation.
● Boom in the Indian Economy
FPIs are optimistic about the Indian market because of the Indian economy’s healthy outlook in comparison to the global economic recession. Indian macroeconomic indicators, such as GST revenues, automobile sales data, and so on, were indicating a positive trend. Corporate earnings for the March quarter exceeded estimates, adding to the positive circumstances
● Government Investment framework
The Indian government is strengthening global ties and friendship, with the other government stressing both FII and FDI flows in the country and easing restrictions in a variety of important industries, including:
The insurance industry’s FDI ceiling was lifted from 49% to 74%, while the defence sector loosened restrictions by lifting the FDI limit for investment from 49% to 74%.The government boosted FDI limit from 49% to 100% in the telecom and oil and gas sectors.
● India’s future prospects
Over the years, India has established itself as a strong favourable investment centre in the aftermath of the Covid-19 outbreak, as well as the geopolitical and economic turmoil that has resulted. According to the OECD FDI restrictiveness index, India’s FDI restriction level has been reduced from 0.42 in 2003 to 0.21. indicating a measurable indicator of India’s FDI flow.
The World Bank has revised India’s real GDP projection for the fiscal year 2022-23 from 6.5% to 6.9% in light of the Indian economy’s stronger resistance to global shocks and better-than-expected quarterly results.
Written by Omkar Chitnis
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