India continues to attract FPIs amidst global sell-off

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MUMBAI: While global bond markets may be witnessing a sell off due to fear of borrowing costs getting costlier dimming benefits of carry trade, India has been an exception among emerging markets to receive record portfolio investments in recent weeks.

Yields in most markets have been rising amid rising commodity and crude prices stoking inflation pressures prompting investors pull-out from emerging markets. But India continues to be an exception. India received portfolio flows worth $6 billion since the beginning of the calendar, and ETIG compilation of Bloomberg data showed.

In contrast South Korea witnessed outflows worth $6 billion, followed by Taiwan with $3 billion moving out. Among other Asian peers, Philippines, Thailand and Malaysia also witnessed outflows from their markets during the period. Indonesia has been an outlier among them with inflows worth less than $1 billion during the period.

For a perspective, the FII sell-off in March 2020, in the initial phase of the lockdown, was more sentimental than fundamental. “As of today, what India offers to FIIs i.e. growth (for equity) and carry (for bonds), even on a risk adjusted basis, is attractive,” said Joydeep Sen, consultant at Philip Capital. GDP growth in the coming year is expected to be the best in the world, though on a lower base. There is no palpable apprehension of sovereign credit rating downgrade.”

In bonds, there may be some mark-to-market hit, but it is contained by virtue of RBI support, dealers said. As the foreign markets are going through “non-taper tantrum”, India is billed as one of the better destinations. GDP trend growth is expected to be 6% beyond FY22, one of the best among major economies. “Off-Balance-Sheet or Extra Budgetary-Resources are being regularised (coming clean) and fiscal deficit will be progressively reduced,” said a bond dealer from an American bank.

One distinct feature is the macro scene and the post COVID revival path where India stands apart from her other Asian counterparts. “In parts of ASEAN, a flare-up in COVID-19 infections has taken its toll. In Malaysia, for example, another lockdown has now been extended to early March, affecting large parts of the economy. Meanwhile, in Indonesia, Vietnam, and Thailand, tighter restrictions in early 2021 have weighed on activity” said a report by HSBC. “India, by contrast, is delivering a remarkably strong recovery. By some measures, industrial activity is only a few percentage points below its pre-pandemic peak. Mobility, too, has largely recovered, which should help spur services demand (which is still 25% below pre-pandemic level) in the coming months”

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