After a period of lull, the foreign institutional investors (FIIs) seem to have to been favouring destination India. Expecting a rate cut by the Reserve Bank of India (RBI) in its upcoming monetary policy meeting, the FIIs have bought $2.37 billion in equity in February. The data compiled by the market regulator, Securities, and Exchange Board of India (Sebi) shows that it is the biggest amount of equity purchased by FIIs since November 2017. In contrast, the FIIs were net sellers of equity worth $4.55 billion in 2018.
One of the major reasons attributed to a buying spree by FIIs is the increased expectations of a rate cut by the apex bank in its next monetary policy committee (MPC) meeting that is scheduled on April 4. The recent government data released on the gross domestic product (GDP) has shown economic growth slowing down to the lowest in five quarters at 6.6 per cent in December quarter as against 7.7 per cent in the July-September quarter.
In a statement, Care Rating highlighted: "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."
According to Mint, Edelweiss Finance in its March 1 report has said that negative sentiment around consumption and investment activity in the economy persist. It further added that the government's hands are also tied for capital expenditure 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 said.
Analyst argued that the recent airstrikes carried out by the Indian Air Force (IAF) on a terrorist training camp in Pakistan have increased Prime Minister Narendra Modi's chances in the general election scheduled in April-May.
"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, an economist at Bloomberg.
The improving global scenario on the economic fronts and with US and China under the process of brokering a deal has also provided comfort to FIIs.