“Central banks are clear they will print money for the next two years. As they print money to finance economies, cost of capital will further reduce. Our country will receive more foreign portfolio investment (FPI) and foreign direct investment (FDI) flows to fund economic revival. This will be a 3-year recovery.
are discounting economic recovery for the next 3 years,” said Saurabh Mukherjea, founder of Marcellus Investment Managers.
After a record sell-off by FPIs of over $8 billion in March, the YTDinvestment rally has improved significantly. At present, FPI outflows stand at about $2 billion. Experts believe the YTD tally for both foreign flows and equity markets could turn positive on a YTD basis.
“When there is more monetary easing, cash finds its way to the equity markets; it is difficult to establish a direct correlation. But the money indirectly seeps into the system. So, equity prices will remain buoyant,” said U R Bhat, director of Dalton Capital.
Not just G4 but even BRIC nations are expected to announce further fiscal and monetary measures.
“Monetary easing may continue till normalcy is restored. Central banks are contemplating further easing. In India, easing has not been much but compared to our finances, it is still significant. There is no other way — money has to be made available cheaply. This is the only way you can handle the economic consequences of the pandemic,” said Bhat.
While easy money trade will keep equities buoyant, experts have sounded a note of caution regarding asset price bubbles.
“Liquidity always takes markets to a higher place than you logically expect. Institutional participation has taken a back seat. Activity is being led by retail investors, who are enjoying the ride. This is going to reverse, but we don’t know what the catalyst will be,” said Andrew Holland, CEO of Avendus Capital Alternate Strategies.