Amid the outflow of foreign investment from the Indian market, a report has suggested that the the foreign portfolio investment (FPI) inflows into India are predicted to remain positive in FY25, with an projection to attract $20-25 billion.
The Bank of Baroda in its report, as quoted by ANI, has termed the recent outflows as temporary trend and said that reversal in FPI flows will happen in FY 25 because of the strong macroeconomic fundamentals of the country.
So far this month, foreign investors have withdrawn Rs 22,420 crore from the Indian equity market owing to high domestic stock valuations, increasing allocations to China, and the rising US dollar as well as Treasury yields, according to PTI. Earlier to this, October witnessed the worst monthly outflow of Rs 94,017 crore. The total outflow currently stands at Rs 15,827 crore this year.
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The outflow of capital by foreign investors from emerging markets, including India, is attributed to a knee-jerk reaction to global developments. These include the recalibration of expectations surrounding the U.S. Federal Reserve's rate cut cycle and political uncertainties following Donald Trump's re-election in the United States.
The report further noted that India's external and fiscal deficits are under control, economic growth remains resilient, and the RBI has built a substantial foreign exchange reserve of over $675 billion to support the rupee if necessary.
"EM markets continue to be attractive for investors seeking higher returns. India's growth fundamentals remain on a strong footing with GDP growth expected to be above 7 pc even by a conservative estimate" the report stated.
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India Focuses on 'Ease of Doing Business'
In November, the Reserve Bank of India (RBI), in consultation with government and Securities and Exchange Board of India (Sebi), had introduced a framework to reclassify FPI as foreign direct investment (FDI) once it crosses the threshold of 10 per cent holding in a company. This, according to RBI, aims at improving the ‘ease of doing business’ for foreign investors.
Currently, an investment made by foreign portfolio investor along with its investor group should be less than 10 per cent of the total paid-up equity capital on a fully diluted basis.
Any FPI investing in breach of the prescribed limit has the option of divesting their holdings or reclassifying such holdings as FDI subject to the conditions specified by the RBI and Sebi within five trading days from the date of settlement of the trades causing the breach.
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