Will Ceasefire & FPI Inflows Lift Markets this Week?
Last week was a tumultuous one for the Indian markets, with the Sensex plummeting by a staggering 1,047 points. The decline was largely attributed to the ongoing tensions between India and Pakistan, which led to a sharp sell-off in the markets. However, with a ceasefire agreement in place and foreign portfolio investors (FPIs) set to return, markets may rebound this week.
In this blog post, we’ll delve into the factors that could drive the markets upwards and provide a glimpse into the future of the travel and tourism industry, which was severely impacted by the recent events.
Ceasefire Agreement: A Step Towards Calm
The ceasefire agreement between India and Pakistan is a significant development that could ease tensions and bring a sense of calm to the markets. The agreement came into effect on February 25, following a series of talks between the two countries. The ceasefire is expected to reduce the risk of further escalation and provide a conducive environment for businesses to operate.
FPI Inflows: A Boost to Markets
FPIs have been pivotal in driving the Indian markets in recent years. However, the ongoing tensions had led to a significant outflow of funds, which had a negative impact on the markets. With the ceasefire agreement in place, FPIs are likely to return, injecting liquidity into the markets and driving them upwards.
In fact, data from the Securities and Exchange Board of India (SEBI) suggests that FPIs have already begun to return to the Indian markets. In the week ended February 21, FPIs invested a net amount of Rs 13,400 crore in the Indian markets, marking a significant turnaround from the previous weeks.
Strong Q4 Results: A Silver Lining
Despite the market volatility, many companies have reported strong Q4 results, which could provide a silver lining for the markets. The results have been driven by a combination of factors, including a strong economy, low interest rates, and a favorable business environment.
For instance, Tata Consultancy Services (TCS) reported a 10.2% year-on-year (YoY) growth in its Q4 results, beating market expectations. Similarly, Infosys reported a 10.1% YoY growth, driven by a strong performance in its banking, financial services, and insurance (BFSI) segment.
Easing Tariffs: A Boost to Exports
The ongoing trade tensions between India and other countries had led to a sharp decline in exports. However, with the easing of tariffs, exports are likely to pick up pace, providing a boost to the economy.
In fact, data from the Ministry of Commerce and Industry suggests that exports have already begun to recover. In January 2020, India’s exports grew by 0.7% YoY, driven by a strong performance in segments such as textiles, gems and jewelry, and engineering goods.
Travel and Tourism: A Recovery in Sight
The ongoing tensions had led to a sharp decline in travel and tourism, with many countries issuing travel advisories and restricting travel to India. However, with the ceasefire agreement in place, the travel and tourism industry is likely to recover in the coming weeks.
In fact, data from the Ministry of Tourism suggests that the industry is already showing signs of recovery. In January 2020, foreign tourist arrivals grew by 3.3% YoY, driven by a strong performance in segments such as leisure travel and business travel.
Currency and Reserves Data: A Cautionary Optimism
While the ceasefire agreement and FPI inflows offer hope for the markets, currency and reserves data suggest a more cautious optimism. The Indian rupee has been under pressure in recent weeks, driven by a sharp decline in foreign exchange reserves.
In fact, data from the Reserve Bank of India (RBI) suggests that foreign exchange reserves have declined by 11.2% YoY, driven by a sharp decline in foreign portfolio investments. The decline in reserves has led to a sharp appreciation of the rupee, making exports more competitive and imports more expensive.
Conclusion
While the markets may rebound this week, it’s essential to maintain a cautious approach. The ceasefire agreement and FPI inflows offer hope, but currency and reserves data suggest a more cautious optimism. The travel and tourism industry is likely to recover in the coming weeks, driven by the easing of tensions and a recovery in global demand.
As we move forward, it’s essential to monitor the situation closely and adjust our strategies accordingly. The Indian markets are known for their volatility, and it’s essential to be prepared for any eventuality.
News Source:
https://www.thecore.in/podcasts/markets-set-to-edge-up-on-ceasefire-moves-835131
