Foreign Institutional Investors Reenter Indian Market as Economic Outlook Brightens: Report
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Synopsis
A recent report indicates that India's economic challenges have peaked, leading to an optimistic outlook. This has prompted foreign institutional investors (FIIs) to invest around $3.8 billion in Indian equities since March 20, highlighting a recovery in key economic indicators.
Key Takeaways
- FIIs invested $3.8 billion in Indian equities since March 20.
- India's GDP grew by 6.2% in Q3 FY25.
- Food inflation reduced to 3.8% in February.
- RBI may cut repo rates by 25bps in April.
- Domestic institutional investors hold 5.4% cash in AUM.
New Delhi, March 28 (NationPress) India’s economic hurdles seem to have bottomed out, with several key indicators reflecting an optimistic trend, according to a report released on Friday. This has likely prompted foreign institutional investors (FIIs) to invest approximately $3.8 billion in Indian stocks since March 20.
Factors such as above-average reservoir levels, rising rural wages, reduced tax rates, and a strengthening job market are seen as beneficial for both urban and rural economies, as highlighted by JM Financial Institutional Services.
The GDP registered a growth of 6.2 percent in Q3 FY25, up from 5.6 percent in Q2 FY25, while food inflation has significantly decreased to 3.8 percent in February.
“The RBI is anticipated to persist with its policy easing approach, potentially implementing another 25bps cut in repo rates during its upcoming April meeting. Additionally, the central government's capital expenditure growth has also seen an uptick in December and January, creating a decent outlook for FY26E,” the report stated.
As of the end of February, data indicates that domestic institutional investors (DIIs) hold a substantial amount of cash, representing 5.4 percent of equity assets under management (AUM).
Since September 2024, the Nifty50 index has experienced an 11 percent correction from its peak, with valuations adjusting from their highs.
“We believe that the mean reversion narrative has largely unfolded, leaving minimal potential for further downside,” the report mentioned.
Looking ahead, the rural economy is expected to perform better in 2025, bolstered by favorable monsoons and healthy reservoir levels.
“Current reservoir levels are above the long-term average, instilling confidence in farmers and leading to increased crop sowing, which should translate into higher income. The rise in both agricultural and non-agricultural wages will likely enhance disposable income,” the report noted.
The income tax reductions announced in the recent Budget, which have resulted in a revenue foregone of approximately Rs 1 lakh crore, should empower the urban populace with more cash, driving discretionary spending.
