Are the capital and security markets in emerging economies, particularly in India, headed for turbulent times? Well, troubled macroeconomic fundamentals and uncertainly in domestic outlook seems to suggest so. The massive efflux of foreign funds and increasingly unfavorable rupee dollar equation in India, amid growing reluctance of overseas investors in non-dollar assets, are indeed alarming for the economy by all standards, opine several prominent security market analysts. The outflow of foreign funds from the beginning of October 2018 until recently has touched a record high not seen in the last one year, if the data from key stock exchanges, such as the Sensex and Nifty, are to be believed. Experts contend that if the foreign institution investors (FIIs) continue to follow this trend, it is likely to be worrisome for the entire economy.
The investors are moving toward assets that are highly rewarding as well as stable, particularly the U.S. securities. According to the Head of HDFC Securities, sensing an alarmingly weak macroeconomic fundamental in India, foreign investors have started spending in the month of October, unlike the usual months of November and December every year.
Investors eye U.S. Bonds as more Rewarding
The current outflow of foreign capital is valued at Rs 19,433.57 Cr. Experts believe this if the massive outflow doesn’t stop in the coming weeks, the country will face tougher macroeconomic conditions. Several factors may have fueled this trend. In September this year, the Federal Reserve System of the U.S. went for a hike of 0.25 % for the third time this year. Furthermore, the U.S. bond yields are more lucrative, it seems.
Microeconomic Condition also not Favorable in India
There can be several microeconomic factors in India triggering this trend. An uncertainty that looms large with general election scheduled to be held early next year account for massive volatility in Capital markets, leading to sliding of rupee. The concerns of trade war and burgeoning interest rates are significant factors behind the stressed macro-economic fundamentals in India, according to an India-based investment services company.