The growth boosters announced by the Finance Minister don’t seem to have weighed in on the Indian capital market yet as the FPI outflow has not stopped. The global factors have overpowered the growth stimulus, and the negative market sentiment has continued. The small-cap companies are badly hit due to the recent developments.
The FPI outflow has so far touched Rs 5,486.49 crore since 23 August 2019. The troubled Indian markets were given a touch of revival when Nirmala Sitharaman, the Finance Minister of India, came up with economic boosters such as withdrawal of increased surcharge on FPIs registered as trusts and bank recapitalisation.
Also, the Finance Minister has assured of easing credit policy to increase liquidity in the economy by leaving more money at banks’ disposal. All these factors don’t seem to have pleased the FPIs as they continue to pull out from the ailing India capital market. The growth stimulus was expected to please the investors, but it has not happened yet.
The amendments made in the Union Budget 2019-20 triggered the exodus from the Indian markets. The FPI outflow of a whopping Rs 30,000 crore was recorded in the equity markets between July and August, and this happened at a time when the Indian markets were expected to scale down new heights.
Liquidity crunch, poor corporate earnings, a slowdown in economic growth, the ailing auto sector, and challenges faced by SME and MSME sectors are a few of the many factors causing FPI exodus. Global factors such as the Sino-American trade war, falling Chinese yuan, and Brexit uncertainty has added to the woes of investors.
The Indian Government and the Reserve Bank of India (RBI) decided to transfer reserves of Rs 1.76 lakh crore, and this move is expected to improve liquidity. As of now, the global factors are overpowering growth stimulus. The Indian stock markets are expected to be volatile in the near future.
A significant global factor that can improve the FPI investment in the Indian capital market is the upcoming United States Federal Reserve meeting, scheduled on 17 September 2019. The meeting is expected to result in a rate cut. The Federal Bank cut 25 basis points in its July 2019 meeting, and this was the first-rate cut in over a decade.
As a result of a rate cut in the US, the FPIs can borrow more money in the US and invest in the Indian bonds to earn much higher returns. Also, the Federal Bank is expected to move from ‘neutral’ to ‘dovish’ stance to facilitate more rate cuts in the near future.