Can Fed’s aggressive stance affect further FPI inflows into the Indian market?

NSDL data showed that in August so far FPI total has been communicated 55,031 crore in total Indian Market (Equity, Debt, Debt-VRR and Hybrid Instruments).

Overall, the inflow of foreign funds into the equity market was at 49,254 crore between August 1 and August 26 — accounting for 89.50% of the total inflows into the market. Meanwhile, stood on the influx 4,370 crore in debt, and 2,918 crore in debt-VRR. However, foreign investors were net sellers in the hybrid market. 1,510 crore during this period.

“FPIs continued to buy equities in August despite the rise in US bond yields and the dollar,” said Dr VK Vijayakumar, chief investment strategist, Geojit Financial Services, adding, “They were also buyers in the cash market on all days of August 3. except.”

“FPIs are now buying stocks of financial, capital goods, FMCG and telecom. The fact that FPIs are buying in India even amid the strengthening of the dollar is a reflection of their confidence in the Indian economy,” the strategist said.

FPI inflows in the month of July 1,971 crore in the Indian market – and out of which – the inflow was on 4,989 crore in equity.

June has been the worst month in terms of FPI’s trend in the Indian market — with outflows 51,422 crore. during the month, was on the outflow 50,203 crore in equity.

From January to June this year, FPIs pulled out in a big way 2,17,358 crore from the equity market. However, some outflows in equities have recovered due to buying in July and August. Now, overall, the FPI outflow in the equity market is approx. 1,63,115 crore year-on-year.

Overall, the FPI has removed approx. 1,70,288 crore (including equity, debt, debt-VRR and hybrid) year-on-year from the Indian market.

However, going forward, Vijayakumar said, “The Fed’s over-aggressive stance at Jackson Hole is a short-term downside for equity markets. It could impact FPI inflows in the short term.”

In a Jackson Hole speech, US Federal Reserve Chairman Jay Powell called for keeping interest rates high to fight inflation at the expense of economic growth. The US dollar rose to its highest level in two decades and many analysts expect it to strengthen further against a basket of currencies.

According to Mitul Shah, Head of Research at Reliance Securities, the Federal Reserve continues to raise interest rates and keep them at higher levels until it is convinced that inflation is under control and at the 2% level. A reduction in the rate of investment, spending and hiring would have the unfortunate cost of driving inflation down. RBI has made it clear to achieve its medium-term inflation target of 4% over the next two years.

Shah said, “The focus in the next few weeks will be on how central banks are prepared to cope in the near term. RBI’s rate-setting panel is expected to slow down the pace of hike and increase the repo rate by 25 bps. The central bank in September hiked the repo rate by 1.4% in three consecutive actions since May this year, in response to high inflation, which has consistently seen the RBI breaching the upper end of the tolerance band set by the government. Is. “

Further, Shah said that till August 26, the monsoon in India is 8 per cent above the long period average. The Fourth Advance Estimates of production of major agricultural crops during the financial year 2012 is estimated at 106.84 million tonnes. Stocks in August fell to month’s lowest level in 14 years, while consumer wheat inflation is hovering around 12%. India’s retail inflation may moderate after peaking in April, but there are some upside risks that will weigh on the RBI as it decides on future rate hikes.

“After gaining 15-20% in the last two months, we expect some profit-booking next week,” Shah said for the Indian market.

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