BackFII inflows into stocks to continue
Foreign portfolio investors have bought Indian shares worth $28.35 bn in fiscal year 2021 so far
PremiumMUMBAI : A liquidity gush is likely to continue into stocks as the $1.9 trillion covid relief bill in the US received final approval. Stronger economic growth in the US will also boost overseas demand for goods and services, benefiting Indian exporters.
Stock markets in the Asia-Pacific region, including Japan, South Korea, Hong Kong and China, rose 1-2% on Thursday as investors bet that the global economic recovery will be hastened by the US stimulus. Indian stock markets were shut on Thursday because of Maha Shivratri.
India has been a huge beneficiary of the inflows of foreign institutional money into emerging markets. Foreign portfolio investors have bought Indian shares worth $28.35 billion in FY21 so far. In the absence of domestic liquidity support, foreign investors have been driving the markets. Benchmark indices in India have surged 70% in this fiscal so far.
“This trend will probably persist, given the strength of the revival in activity and corporate earnings," said Narayan Shroff, director of investments, India, at Barclays Private Bank. However, equity returns may be lower than in 2020, he said.
Minutes from the Federal Reserve’s January policy meeting indicated that Fed officials would need to keep interest rates low and continue bond purchases to help the economy recover from the disruptions caused by the pandemic. Fed chair Jerome Powell said that the discussion on tapering of the Fed’s massive bond-buying programme is premature.
“Globally, however, the worries on inflation and the unsettling moves on the US 10-year yield gave a glimpse, a ‘trailer’ of reality—valuations could compress; economic growth could get stunted, if bonds yields sustained and moved ahead. For the current economic recovery to sustain, containing bond yields, not through “yield curve management" but through moderating inflation expectation will be a key variable to track for the rest of the year," said IDFC Mutual Fund in a report. It added that if the recent surge in commodity prices can be managed, then future inflation expectations will get moderated, helping bond yields calm down.
Analysts at UBS Securities India said that 12-month foreign equity flows into India are inching close to the previous decade highs.
“With mood music so loud on reflation, that’s not a problem. But this positioning could turn into a headwind if rising US yields or commodity prices dampen the equity markets sentiment," it said in a note.
Reuters contributed to the story.
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