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Foreign money inflows into India’s debt and equity markets are off to a slow start so far this year, according to a research report by Singapore’s DBS banking group.
Foreign inflows into India’s debt and equity markets lost momentum last year, said the bank in its daily report on Asian economies on January 12, 2016.
In 2015, foreign equity inflows narrowed to US$3.2bn, a fourth of the US$16bn registered the year before.
Debt flows also moderated to US$7.4bn from a strong US$26bn in 2014.
Given the backdrop of heightened external risks and slower global growth, incremental portfolio flows into the domestic markets will slow, said the bank.
“This will lower the need for the central bank to mop-up liquidity aggressively.
“Additionally, authorities will be less interventionist if the rupee weakens gradually in sync with its regional trading partners, stepping in only to minimise volatility,” said DBS.
India’s foreign reserves eased to US$350bn by end December 2015, down about US$5bn from its record peak seen in mid-2015, according to the DBS report.
Currency valuations and the authorities’ active presence to contain rupee volatility likely influenced the pace of reserve accumulation, it said in a daily report on Asian economies.
Despite the modest pullback, the current stock is comfortable on domestic metrics, especially with regard to the import cover (10x) and adequacy to cover short-debt external debt levels.
But the coverage falls short when compared to the total external debt position and as a percentage of Gross Domestic Product (GDP) vis-à-vis regional counterparts.
“Looking ahead, we expect the focus on higher reserves to persist even as the pace of accumulation slows,” DBS said. fii-news.com
