The Hindu Business Line : Fed rate cut may not augment FII inflows

Mumbai, Jan. 31 Despite a further cut in the US Fed benchmark interest rate, marketmen are not sanguine about the prospects of a surge in FII inflows.

“In the long term, reduction in interest rates in US does force funds to seek other geographies for investing but in the short term it is unlikely that overseas funds will turn to Indian markets,” said Mr Naresh Kothari, President & Co-Head, Institutional Equities.

Booking profits

The Chief Executive Officer of a wealth advisory firm said that there does not seem any possibility of sudden increase in FII inflows due to the rate cut. On the other hand, big fund houses are booking profits in India to cover for their huge losses incurred, following sub prime crisis.

In the long run, money will flow to India if returns are good. The fed rate cut itself doesn’t lead to any increased inflow of funds into India — both in the equity or the debt market — said Mr Hitendra Dave, Co-Head of Global Markets, India Global Markets, HSBC.

The US Federal Reserve cut its benchmark interest rates by 75 basis points from 4.25 per cent to 3.50 per cent on January 22 and a further 50 basis points to 3 per cent on January 30 as a response to a possible recession in the US.

Liquidity

According to SEBI data, FII have sold securities worth Rs 7236.8 crore of FII money since January 22.

Another market observer, discarding the possibility of any rise in money coming in from US, said that there might be some money coming from the Gulf to India. The Fed has cut the rate mainly for providing liquidity in the American economy and not for encouraging investors there to look for better opportunity outside as any liquidity generated will be absorbed in the system itself, said the research head of a brokerage firm.

Nevertheless, it would be difficult now to make any assumptions as to whether more money will come into Indian markets as the whole market scenario is quite uncertain and no one knows what turn the market will take now, he added.