March will be the first time in 6 months when FIIs will be net buyers. Though the final amount is significantly small despite the Rs 33,183 crore pumped in this month, the book of records will show a green tick for the month. Thanks to the FII buying seen in the last week, they have turned net buyer of equities worth Rs 2014.18 crore in the final month of FY25. However, analysts put out a word of cation and reiterate that it is not time to celebrate yet and there is no definitive indication of a trend reversal.
Shrikant Chouhan, Head Equity Research, Kotak Securities highlighted that, “FPI flows are expected to remain volatile. India outperformed global markets over the past week, as volatility continued to reign in global markets over possible forthcoming US tariffs. Indian markets continued to witness positive sentiment, especially from foreign investors. Meanwhile, the rupee appreciated 0.6% against the dollar over the past week.”
Four key factors to watch before a definitive reversal in FII action
Foreign investor flows till March 27 indicate that they were negative for all key emerging markets except India, Brazil, the Philippines, and South Korea. In fact, markets like Indonesia, Malaysia, Taiwan, Thailand, and Vietnam recorded significant outflows as well. There are many factors dictating the FII trend at the moment but clarity on Trump tariff is the biggest concern of all-
Clarity on Trump Tariff
The uncertianty with regards to Trump Tariff continues. After hiting at possibilities of some relaxation, the US President Donald Trump has again reiterated that he will unveil a massive tariff plan on Wednesday, which he has dubbed “Liberation Day.” According to Trump, “You’d start with all countries. Essentially all of the countries that we’re talking about.” The US has already imposed tariffs on aluminum, steel and autos. Along with this, there is now increased tariffs on all goods from China.
This analysts say will play a key role in determining the future allocation trend. According to market expert, Ajay Bagga, “On the global front , the picture is muddled by the organised chaos that is the Trump 2.0 policy. The tariff implementation post April 2 is being watched by all governments , businesses and investors as it will have a deep impact on geo-economics and supply chains.”
Dr. VK Vijayakumar, Chief Investment Strategist, Geojit Investments added,
“The reemergence of FIIs as buyers contributed to smart about 6% recovery in Nifty. What prompted FIIs to turn buyers include-
1. The valuations turned attractive after around 16% correction from the September 2024 peak.
2. Recent appreciation in rupee led to reversal of the momentum trade towards US investment.
3. India’s macros – GDP, IIP and CPI inflation- improved paving the way for a rally in the market.
Going forward, the trend in FII flows will depend mainly on Trump’s reciprocal tariffs expected on April 2. If the tariffs are not severe, the rally may continue.”
Dollar- What’s the way forward?
The rupee has recently risen 0.36% versus the U.S. dollar to 85.47, boosted by FII inflows alongside a drop in bearish positions on the currency. Moreover, a relatively weak dollar has also helped sentiment. In fact the Dollar Index has been seen stabilising around the $103/bbl mark over the past few weeks. The greennack has come off significantly over the last 1 month after soaring to higjs of 110 levels in January. It is now down over 4% for 2025 so far.
According to Bagga, who outlined a broad overview of the Dollar’s move over the longer-term, “Trump wants a weaker US Dollar to strengthen the export competitiveness and lower the attractiveness of imports for the US economy. His Treasury Secretary, Scott Bessent however has reiterated that the strength of the US dollar is the objective of the US Treasury department. Given the trade deficit and the fiscal deficit that the US faces, along with the huge outstanding National Debt of $36 trillion, the US dollar should have been weakening. However, the dominant position of the US dollar as the global reserve currency and its safe haven status means the US dollar has stayed strong against most of the global currencies and its trade partners.”
Q3FY25 Balance of payment at historic highs
The net capital flows in Q3 turned negative at -$26.8 billion, due to FPI and FDI outflows, banking capital outflows and other capital outflows. The outflows in FPI was triggered by rising US Treasury yields and risk off sentiments. This sharp rise in capital outflows, resulted in Overall Balance of Payment deficit of $37.7bn in Q3, which is a historical high. However, “the Balance of Payments deficit in Q3FY25 would have been much higher if RBI had not conducted buy-sell swaps to limit the drain on FX reserves. There was a build-up of net dollar short positions in RBI’s forward book worth $67.9 billion as of December 2024 Vs $14.6 billion net dollar shorts as of September 2024. Without the buy-sell swaps the balance of payment deficit in Q3 would have been -$91bilion,” explained Gaura Sen Gupta, Chief Economist, IDFC FIRST Bank Economics Research.
All eyes are on how the numbers stack up going forward, given some inflows trickling in from FIIs.
RBI Policy announcement on April 9
The RBI Monetary Policy Meet is one of the most talked about event in April. Most economic experts and key market observers expect the RBI to continue on the easing path and also see the easy liquidity regime continuing. The rate cut cycle is expected to continue and the consensus is for a 75 bps rate cut by the RBI in the entire year.