FIIs bought $2.37 billion in equity in February, their biggest purchase since November 2017, according to data compiled by the Securities and Exchange Board of India (Sebi). In 2018, FIIs were net sellers of equity worth $4.55 billion. The recent buying follows increased expectations of a rate cut by the RBI in its next monetary policy committee (MPC) meeting, on the back of slowing gross domestic product (GDP). Government data released on 28 February showed that economic growth slowed to a five quarter low of 6.6% in the December quarter from 7.7% in the three months ended 30 September.
“The lower growth in GDP could prompt the RBI to lower interest rates as economic growth has been cited as a concern. This would however be contingent on the inflation reading for the coming months," said Care Rating in a 28 February note.
The next MPC meeting is due on 4 April.
Fears of a slowdown in consumption and investment activity in the economy persist, said brokerage firm Edelweiss Finance in a 1 March report. Edelweiss added that government capital expenditure is also likely to be curtailed given fiscal deficit concerns.
“Moreover, the CPI ruling at around 2.0% gestures benign inflation. Given the same, the MPC flagged risks to growth during the Feb ’19 meet. The slowdown in the economy has strengthened hopes of further rate cuts in favour of growth during the coming months," the report added. On the political front, the recent air strikes by India on a terrorist training camp in Pakistan have bolstered Prime Minister Narendra Modi’s chances in the upcoming general election, analysts say.
“A tough stance against a threat from Pakistan-based terrorists has won Prime Minister Narendra Modi praise from the Indian public, which in our view could translate into electoral gains for him and his Bharatiya Janata Party in national elections in May. Political continuity would bode well for structural reforms and bolster market sentiment", said Abhishek Gupta economist at Bloomberg in a 4 March report.
Globally, post the Fed’s pivot toward a dovish stance, other central banks have followed suit, including the European Central Bank, Bank of England and Bank of Japan. In a challenging global growth environment, this, coupled with recent optimism over a US-China trade deal, also provided comfort to FIIs, according to a 5 March Elara Capital report.