India is expected to attract moderate FII inflows of $15-$20 billion in 2018, with headwinds such as the muted outlook for corporate earnings and continued compression in debt spreads relative to advanced economies, rating agency ICRA said in a report on Tuesday.
"With the muted outlook for corporate earnings and emerging sectoral concerns regarding Indian software and pharmaceuticals exports to the US, the net FII equity inflows are likely to be restricted below $5 and $10 billion respectively in FY17 (2016-17) and FY18 (2017-18), in our view," said ICRA Senior Vice President and Group Head-Financial Sector Ratings, Karthik Srinivasan.
The agency expects aggregate FII debt outflows in FY17 of $6-$8 billion, followed by aggregate inflows of $5-$10 billion during FY18.
"Indian bond yields are unlikely to ease significantly below current levels, given the limited further monetary easing expected from the Reserve Bank of India.
"Moreover, the supply of net long term borrowings of the government is likely to increase in FY2018 from Rs.4.1 trillion in FY2017, as the central government is likely to budget a fiscal deficit range between 3 and 3.5 per cent of the GDP," he said.
The Indian markets had witnessed record FII outflows of $11.3 billion during Q3 (third quarter) FY17 on the back of a combination of international and domestic factors, including the risk-off sentiment triggered by the outcome of the US presidential election in November 2016 and the tightening of monetary policy by the US Federal Reserve in December 2016.