Foreign investors are one of the biggest players in the Indian stock market. Needless to say it is important that FIIs remain invested in the market. Otherwise, the market could see lots of falls. Already foreign investors have sold a lot in the last few months. This is mainly because of the weak global economy and markets. Moreover, with the slowdown in China, investors around the world are worried. As a result, sentiment has taken a hit.
Also read: Union Budget
While the reasons are global, Indian markets have been affected too. This is mainly because of the lower-than-expected corporate performance. That said, the Indian market performance has been much better than many of its peers.
Going forward, a lot depends on the Budget. Let's see if the FIIs could continue to bet on Indian
Global Factors To Dominate: Going ahead, we expect that the global factors will continue to determine foreign investors' activities. However, a lot depends on two other things – improvement in corporate earnings and domestic macroeconomic factors.
Fiscal And Monetary Initiatives: The Indian economy needs assistance from the government to stimulate growth. This applies to the corporates too. This is why the Budget will play a major role in determining the foreign investment flows. However, all of it depends on the Budget announcements.
Fiscal Prudence: Most important for foreign investors would be the government's fiscal deficit target. The Indian government had run over 5% fiscal deficit for years. Now, it has been narrowed to 3.9% of the GDP. It is more than important today to continue fiscal consolidation. Even a small slip could cause the foreign investors to lose trust in the government's focus. Sustained focus on growth: The need of the hour is investment in the economy. Investors would closely monitor the Budget for its growth-related policy. Infrastructure needs investments from the government at a time when private investment is yet to pick up.
Control Subsidies: The government has to cut down its expenditure and increase revenues to cut down fiscal deficit. This leaves it with little room for productive spending unless it controls its subsidy expenditure. Already, India deregulated the petrol and diesel prices, allowing it to save crores on subsidy payments. It is vital for this subsidy control to continue further.
Tax Reforms: Goods and Service Tax is long pending. It is the most important tax reform in the pipeline. The tax reform could help add nearly 2% to the Gross Domestic Product, a measure of the economy. Apart from that, the government needs to look at other tax measures too to stimulate growth.
Reform Measures: GST is not the only important legislation pending. Other reform measures like the Bankruptcy Act or reform of PSU Banking sector regulations are much needed. These will increase the FII's confidence on India.
Global factors caused FII selling, but Budget could change that.
FIIs will closely eye government's fiscal deficit targets and expenditure plan.
Reform measures like Goods & Services Tax (GST), Bankruptcy Act will increase FII confidence.
Also read: Highlights of Union Budget 2019
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