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FPI inflows may grow to $15-20 billion in FY18: CARE Ratings

LiveMint logoLiveMint 09-05-2017 Nasrin Sultana

Mumbai: India is expected to get strong foreign portfolio investment (FPIs) in financial year 2018, following an improved inflow last year. According to CARE Ratings, FPI inflows may increase to the tune of $15-20 billion in FY18.

“More FPI inflows are expected in equity segment than in debt segment of the market as nearly 78% of FPI limits in central government debt securities has been exhausted and 82% in case of corporate debt securities,” the rating agency said, in a report on 8 May.

In FY17, FPI inflows were nearly $8 billion compared with net outflows of $4 billion in the previous year. According to Care Ratings, FPIs had sold in Q3 of FY17 due to uncertainty caused by the US Federal Reserve’s interest rate policy and improved economic performance of the US.

However, in the following quarter, market sentiments turned positive after the Uttar Pradesh election results were declared and a rate hike by the Fed accompanied by a less hawkish stance increased investors’ appetite. In March, the Fed had hiked benchmark interest rates by 25 basis points for the second time in three months.

Surge of liquidity and positive sentiment had aided the benchmark indices to strong growth in FY17. The Sensex gained 16.88%, while the Nifty soared 18.55% in FY17.

“The debt segment witnessed more inflows compared to the equity segment of the market. The higher inflow of FPI into the debt segment may be attributed to enhanced limits offered to FPIs in the GSec (government securities) segment as well as better utilization in the corporate debt market,” CARE Ratings said.

Favourable economic conditions and proactive measures taken by the government are expected to be the main drivers of India’s higher economic growth in financial year 2018.

According to CARE Ratings, the economic outlook of the Indian economy looks positive with the country expected to grow at more than 7.5% in FY18 before moving past the 8% trajectory in FY19.

CARE expects exchange rate of the rupee to remain steady at around 65-66 per US dollar dependent on economic fundamentals, increasing current account deficit and slower growth in external commercial borrowings as well as non-residential Indian (NRI) deposits.

Increased government spending in infrastructure, private investment pick-up, good monsoon, consumer spending and implementation of goods and services tax (GST) are likely to spur the economy further.

There are certain threats like inflation, increasing global commodity prices, slower growth in investment and credit, rising bad loans issue and uncertain trade prospects with appreciating rupee and uncertain global economic conditions, the rating agency said in a report on 8 May.

It added that protectionism adopted by the US and higher interest rates by the Fed, revival in European countries and higher growth in China causing diversion of funds from India could counter the prospective growth story of the country.

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