Foreign institutional investor flows improve for India, emerging markets

After pulling out $5.6 billion equities and $2.4 billion from the debt market between August and September, foreign institutional investors (FIIs) have turned buoyant in November. So far this month, FIIs have invested around $750 million, each, in equities and debt market. Not just India, most other emerging markets (EMs) have seen improvement in FII flows. 

The latest risk on sentiment among global fund managers is triggered by a retreat in the US Treasury and the dollar, observe analysts. Market players are hoping that the geo-political turmoil and global growth concerns will force the US Federal Reserve to pause its policy tightening. Most economists expect the pace of tightening to be slower than expected. This optimism has played out in the financial markets. The yield on the 10-year US government bond has come off by 15 basis points (bps) from 3.24 per cent to 3.09 per cent. 

Meanwhile, the dollar index, which compares the value of the US currency to a basket of global currencies, has come off by more than one per cent. Rising dollar and US Treasury were considered as the prime reasons for turbulence in the EMs since August. With these two retreating, most EMs, including India, have got the much-needed breather. The rupee has gained nearly four per cent from its all-time low, while benchmark indices have jumped around seven per cent.