Amid improving rupee, low inflation coupled with weakening oil prices, the industry chamber, Associated Chambers of Commerce and Industry of India (ASSOCHAM) is expecting foreign institutional investors (FIIs) to stage a strong comeback into India sooner than later. A sharp rally by the rupee was buoyed by big drop in global oil prices. India is the third largest importer of crude oil, and a steep fall in global prices also eases concerns about inflation, fiscal and current account deficit.
Signs of reversal in trend came on November 15, when provisional data with the exchanges showed that foreign funds inflow touched a three-month high of Rs 2,043.06 crore. The rupee and the US dollar equation along with an uncertain domestic and global economic growth outlook had triggered a massive foreign fund outflow from the country’s capital markets in October. Investors pulled out from emerging markets to redeploy their capital into safe-havens such as the US securities.
According to data provided by the National Securities Depository (NSDL), this year outflow of foreign funds stands at Rs 39,209 crore from the equity segment, highest since 2008 when they had withdrawn Rs 51,252 crore in the wake of global crisis. However, another major reason for the funds outflow was the US Federal Reserve’s decision to raise its key interest rate in the month of September. A rate hike by the US Fed generally drives away foreign funds from major emerging markets like India.