InvestorQ : Is it possible that FPI outflows could touch $100 billion in 2022?
Tisha Malhotra made post

Is it possible that FPI outflows could touch $100 billion in 2022?

Aashna Tripathi answered.
11 months ago

That is technically possible but a very outside chance of that occurring. Even the RBI has given just about a 5% probability to such an eventuality of FPI flows crossing $100 billion. Currently, it stands at $22 billion in the calendar year 2022. Only if there is a combination of global recession and high volatility in the Indian markets there is such a possibility but that is an outside chance. Also, the selling has been rampant only in equities with bond selling a lot more subdued during the current year at less than $2 billion in total.

There are several reasons for FPI selling in India. The US interest rates are expected to widen the interest rate gap in real terms. The sharp rise in inflation due to surge in commodity prices is a challenge for India, due to its 85% dependence on global imports of crude oil. In addition, there are the supply chain constraints caused by the Ukraine war and China lockdowns to arrest COVID. This is creating tightness in the supply chain and disrupting production schedules. The latest risk is the World Bank lower India growth rates.

However, the RBI in its latest monthly bulletin assured that while outflows were robust, there was just a 5.2% probability of FPI outflows in FY23 crossing $100 billion. That was a worst case scenario painted by some sceptics. The bigger concern could be on the rupee front. India has a problem with forex reserves of just 9 months of merchandise import. If it goes below 8 months, a run on the rupee cannot be ruled out. India’s foreign exchange reserves have fallen from $647 billion to $594 billion with RBI intervention.