"And except for the last few days when the numbers have shot up, India is seen to have navigated the pandemic rather well. The economic recovery appears to be strong when you look at the various high-frequency data points," said U R Bhat, director, Dalton Capital India.
Analysts said that while FPI flows could taper off due to some risk-off trades, India's complete reversal of flows is unlikely.
"Once investors start looking for growth and yields to some extent, then Asia will be the place you will get growth, particularly China and India. And as earnings continue to get upgraded for the next few years, that will be the catalyst for markets
to move higher, and we will get more flows," said Andrew Holland, CEO, Avendus Capital Alternate Strategies.
However, equity markets
are likely to bear the brunt of global credit expansion.
"Over the last two decades, for generating an additional unit of GDP, global credit had to be expanded by 3.4 times, as against a long term multiple of less than half the number. There is lot more liquidity in the system than what could be considered as necessary. This is the case in most developed economies. The extent of expansion of the Fed's balance sheet is unprecedented. These things have a way of coming back to haunt you," said Bhat.
Over the last four weeks, despite the Fed's reassurances, markets
have been volatile due to concerns about higher interest rates.
"Markets seem to be seeing the point of inflexion on the interest rate trajectory. Even if the fiscal stimulus is suddenly stopped, the excesses of the past are going to haunt us in terms of dearer interest rates," adds Bhat.
In the future, analysts said though a complete reversal is unlikely, we may not see anytime soon the historic highs in the quantum of FII flows that we saw over the last few months.
The average flows could get to less than a billion-dollar a month, as in the past. India is continued to be seen as an economy that shows the best trend growth. And opportunities for investing in good companies remain. However, there will be months where there will be outflows, which could lead to some correction in equity markets.
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