Goldman Sachs cuts 2022 FPI flow projection to India by over 80% to $5 bn

Foreign portfolio investor (FPI) flows into India may remain tepid in 2022, said a recent note by Goldman Sachs, who now peg the foreign portfolio investment into India at $5 billion in 2022, down from their earlier forecast of $30 billion with risks skewed to the downside.

“There has been $15 billion of equity outflows YTD in India already, and the IPO of the largest insurance company has been pushed out. Additionally, with no mention of India’s inclusion in global bond indices in the Union Budget, there are risks to our already conservative base case assumption of an announcement of India’s likely inclusion into the GBI-EM Global Diversified Bond Index in Q4-2022,” wrote Andrew Tilton, Goldman Sachs' chief Asia-Pacific economist in a co-authored report with Santanu Sengupta and Suraj Kumar.

Adding: “With our view of monetary policy normalisation in India, and the US economics team’s view of additional 200 basis point (bp) rate hikes by the Fed in 2022, fixed income inflows in India may remain tepid.”

Equity inflows over the last three years from 2019-2021, according to a note by BofA Securities, totaled over $40 billion, out of which nearly $14 billion has left in the first quarter of 2022 (Q1-2022). 

“The inflows were driven by tax reforms with government's strong focus on stimulating growth and loose monetary policy. As RBI is gradually moving towards tightening liquidity conditions and raise interest rates from mid-2022, we per our expectations, growth momentum would need to hold up in order to attract fresh allocation,” said the BofA Securities note.

Given the recent global developments and their impact on India's macros, Goldman Sachs has pegged an overall capital account surplus of $65 billion in calendar year 2022 (CY22), lower than $88 billion surplus in CY21, with balance of payment (BoP) deficit of $50 billion in CY22 (from $55 billion surplus in CY21, and over $100 billion surplus in CY20).

Elevated commodity prices

Despite the geopolitical concerns showing some signs of a thaw, Goldman Sachs expects the commodity prices to remain elevated going ahead as the sanctions imposed on Russian entities will likely remain in place for some time, further constraining supply in already tight commodity market. 

They now forecast Brent at an average $120 a barrel (bbl) in Q2-2022, $135/bbl in the second half of 2022 (H2-2022), falling to $110/bbl in 2023.


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