After a massive exodus of foreign funds from the country's capital market segment in 2018, analysts anticipate a recovery in inflows on the back of robust corporate earnings and resolution of the ongoing liquidity crisis. Experts are of the opinion that foreign fund outflows last year was due to rise in US interest rates, global trade wars and the state elections.
According to SMC Investments & Advisors Chief Managing Director DK Aggarwal: "We strongly believe that foreign investors would return to Indian equities in the 2019."
"The testimony to this is that they have already been biased towards the end of 2018 because the Indian economy is expected to do well in light of fall in crude prices, governments' strong determination to push an agrarian economy, bottoming out of problems with respect to NPA's (non-performing asset) in the banks etc."
In 2019, Brijesh Ved of BNP Paribas said that recovery of earnings and a likely high economic growth rate will lead foreign investors back to India.
"India is likely to be amongst the fastest growing among the EMs (emerging markets). We believe stable government formation in 2019, coupled with earnings recovery can lead to an increase in FII (foreign institutional investor) flows into India during 2019," Mr Ved said.
The exodus of funds has been worrying for the country's equity market as India's dependence on them has only grown over the years. A decline means that investors are turning towards other high-yielding instruments.
The domestic investments, however, remained healthy in 2018. The trend is expected to continue this year and further insulate the capital markets.
"We believe that given the low penetration of equities amongst Indian households, increase in the financialisation of savings and improved earnings outlook will be drivers for stable flows from domestic investors into equities," Mr Ved added.
The FII outflow trend was strongly visible in 2018 and the key reasons for the outflow, analysts said was the increase in US treasury yields following a reversal of "Quantitative Easing" as interest rates were raised.
The NSDL data showed that Foreign Portfolio Investors (FPIs) sold Rs 80,919 crore worth of equities, debt and hybrid instruments in 2018. The equity segment alone accounted for Rs 33,014 crore in outflows, the highest in a decade.
This was second only to 2008, when the financial markets across the globe plunged into deep recession.
FII investment in the capital market segment saw the second worst outflow ever in 2018, next just to 2008, when the financial crisis rocked the global markets.
FIIs have been net sellers only on three occasions since 2002.
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