Will India-US trade pact reverse foreign outflows? Fine print holds the key

Subscribe to enjoy similar stories. Foreign outflows from India will reverse only when potential gains for India from its trade pact with the US become clear, according to money managers, even as the joint statement is likely to lift market sentiment. For now, markets will get a boost from short-covering by foreign portfolio investors (FPIs) on derivatives and some cash buying seen so far this month, they said.

Overseas investors have net purchased Indian equities worth ₹5,908 crore since the trade pact was announced on 2 February, after three months of selling worth ₹62,338 crore, according to data from the National Securities Depository Ltd. "The markets have discounted the positive news, but the needle for reversal for FPI outflow will move only after the finer points of the deal are analysed," said Nilesh Shah, managing director of Kotak Mahindra Asset Management Company. Until then, he adds that a “sentimental boost " is possible.

The GIFT Nifty, trading up 0.68% on Saturday, suggests a 180-point gap-up opening on Monday. The final framework for the trade deal is expected to be out later this week. Whether Nifty sustains above the 26000-mark will depend on how markets perceive the benefits of the deal, alongside factors such as rupee stability and earnings growth.

"A sentimental boost is quite likely, given the issuance of a joint statement by both sides," said Ashish Gupta, chief investment officer at Axis Mutual Fund. But the reversal of FPI outflows will also be contingent on factors such as a stable currency and improved earnings growth, he said. The rupee has depreciated 0.87% in the year through Friday, according to Bloomberg data.