Gushy inflows1 min read . Updated: 25 Nov 2020, 10:25 PM IST
If gushy inflows put the rupee on an upward path, then overseas investors could profit off this as much as off stock-price gains. Nothing wrong with that. But we must watch the rupee
November has marked a spectacular run for Indian stock markets. Benchmark indices climbed to record highs and foreign investors have pumped in breathtaking sums of capital. By Wednesday, foreign funds had bought ₹58,694 crore worth of Indian equities this month. With four trading days still to go, the final figure looks set to scale a higher peak.
Those inflows seem driven to a large extent by a flush of liquidity created by the easy-money policies of major central banks in the West aimed at keeping their economic wheels turning. With the world economy battered by the covid pandemic, much money has understandably found its way to emerging economies such as India, where investments can fetch big returns. Such flows are likely to continue for now, but perhaps we need to be wary of “carry trades", by which cheaply-borrowed dollars are put into assets denominated in the currency of an economy with higher interest rates (and usually high inflation). If gushy inflows put the rupee on an upward path, then overseas investors could profit off this as much as off stock-price gains. Nothing wrong with that. But we must watch the rupee.