India’s domestic growth and improving domestic capital flows could provide the economy vital support amid outflowing foreign investment flows and a decrease in foreign direct investments due to ongoing hostilities in West Asia, revealed a Jefferies research report.
“The encouraging signs are coming from domestic investors. The Indian banking sector witnessed 17-18 per cent credit growth year-on-year in Financial Year 27, the highest level in more than a decade,” the report added.
It also noted that India recorded net foreign buying of US$2.45 billion in equities in July, helped by an unwind of the memory trade. Though foreign investor confidence has remained negative as the flow of funds decreased by US$25.4 billion year-to-date, highlighting continued pressure from overseas flows.
The report indicated positive and noteworthy developments in automobile and property demand, suggesting that domestic consumption and investment activity are providing an important counterbalance to volatile global capital flows.
While the outlook for the domestic currency has also improved, supported by strong RBI measures. The central bank’s initiative of attracting capital inflows from non-resident Indians has yielded about US$41 billion of inflows so far.
Jefferies expects the total to potentially rise to US$80-100 billion over the next two months before the scheme ends.
Foreign investors have brought in US$8.7 billion into Indian government bonds since the beginning of June after interest income on such holdings was made tax-free. However, the inflow still remains low but may pick up momentum in the coming months, giving the Indian rupee a breather after it had stalled at an all-time low of 96.96 against the US dollar in May this year.
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