Editor’s take: Global volatility could impact FII flows into India, markets cannot stay immune

The second thing that they point out is that tax collection in exactly those months when there was the second COVID surge, that is in April, May, June and July have been 70 percent higher as compared to 2019. So, this is something that has to be factored in, in terms of higher tax collections and this is not lost on the FPIs; they have started buying Indian bonds big time in September. The other reason, of course, is that Indian bonds may get included in global indices sometime soon, which may happen in weeks and that’s the market expectation, because of that there is a huge flow into FII bonds. For FII equities, it means that the cost of capital is going to be cheaper for the Indian government, they can do more capex and therefore for India, in terms of equity delta, delta is higher at a time when the delta is lower for China and the US, which explains the extraordinary flows even in equities.

According to a Credit Suisse report, India has had five months of outperformance vis-à-vis EMs and 12 months of outperformance by 22 percent, which is the highest since September 2014. Also, the PE premium that India has to the world and EMs is at a decade high. It’s been 243 days since the last 10 percent drawdown in the Nifty. This is the third-longest ever in the history of the Sensex and the Nifty. The report also suggests that markets cannot stay immune to global volatility even if there are very strong domestic retail flows, they can delay but they cannot postpone our reaction to global volatility. Global slowdown, which is Asia, China and US slowdown, will mean our exports will slow down and if because of global volatility, FII flows start tapering then that will also start impacting our multiples.

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