As the Indian economy is showing signs of recovery, foreign institutional investors (FIIs) are expected to pump in more funds into equities, which may take their total exposure in the country to as high as $35 billion this fiscal year.
If all goes well and GDP continues to grow at the current levels, we could expect FII flows into the equities to touch $25 billion within the next one year.
After growing at under 5 per cent for two consecutive fiscal years, the economy grew at 5.7 per cent in the first quarter of 2014-15. While the government has projected a near 6 per cent growth for the full fiscal year, the Reserve Bank of India (RBI) has pegged it at 5.5 per cent.
FIIs have already pumped in $14 billion into the domestic equities so far this fiscal and it is all set to increase next year.
Financial Experts do hope that this trend will continue and FII inflows may cross the mark of $35 billion or more by the end of the fiscal.
Typically, foreign inflows will happen in defensive sectors like banking, IT and pharma. The way the country moves and its GDP moves, different sectors become attractive accordingly. Mid-segment sectors like cement, steel, textile, auto and even real estate may also see the inflow of foreign capital in days to come.
After pulling out nearly $15 billion from the country last fiscal year following the Federal Reserve’s talk of tapering its stimulus programme, which hit the rupee hard, FIIs have returned to the market in a big way.
The stock market rally following the BJP victory in the general elections since May has catapulted the BSE 30-stock index, Sensex, by close to 29 per cent year-on-year.
Total exposure of FIIs in the domestic market is $25 billion, with $11 billion in the government bonds.
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