Mumbai: India’s strong macroeconomic fundamentals — robust GDP growth, controlled inflation, managed twin deficits and record foreign reserves — have kept the rupee resilient despite foreign institutional investor (FII) outflows, a report showed on Wednesday.
Most of the emerging markets have experienced FII outflows during October amid uncertainty around US election, geopolitical tensions in middle east, stimulus announcement by China and rise in US yields.
According to the report by Motilal Oswal Private Wealth (MOPW), in India, these outflows were exacerbated by the ongoing result season that failed to justify valuations.
Correction was more pronounced in sectors that saw sharp rally in the past one year and especially in companies that failed to meet market expectations on earnings, the report mentioned.
However, despite the FII outflows of $12 billion, the rupee has shown resilience compared to past such incidences.
“Further, India’s contribution to world market cap has also grown from 1.7 per cent in 2013 to 4.3 per cent now, and in terms of the market cap ranking India has improved from 17th to 5th,” the report mentioned.
Equities as an asset class is also gaining allocation in the Indian household savings. India’s considerably large size and diverse sectoral offerings place India among the key equity markets globally, it added.
In the long term, the equity market outlook is positive due to corporate deleveraging and expected healthy earnings over the next two years.
“However, short-term volatility is anticipated due to global uncertainties like geopolitical issues, central bank policies, and valuations. Investors are advised to proceed cautiously with a balanced strategy,” the report said.
Those with adequate equity allocation should stay invested, while those under-allocated can increase their exposure gradually, over 3 months for large and multi-cap strategies, and 6–12 months for select mid and small-cap strategies, with accelerated deployment if a significant market correction occurs, it advised.
Looking ahead, the gold market is poised to navigate through diverse influences.
“The intersection of geopolitical developments and macroeconomic indicators will likely continue to create volatility, with gold serving as an attractive option for investors seeking risk mitigation,” the report noted.
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