Will Ceasefire & FPI Inflows Lift Markets This Week?
Last week was a tumultuous one for the Indian stock market, with the Sensex plummeting by a whopping 1,047 points. The sudden downturn was largely attributed to the escalation of tensions between India and Pakistan, which led to a decline in investor sentiment and a sharp fall in foreign portfolio investment (FPI) inflows. However, in a surprise turn of events, a ceasefire has been announced, and FPIs are expected to return to the market this week. In this blog post, we will explore whether these developments can lift the markets and what other factors are contributing to the cautious optimism.
Ceasefire: A Turning Point for Markets?
The ceasefire, announced on February 25th, marks a significant shift in the tone of the conflict between India and Pakistan. The development has been hailed as a positive step towards reducing tensions and promoting dialogue between the two nations. In the context of the markets, the ceasefire has brought some much-needed respite from the uncertainty and anxiety that had been plaguing investors.
The announcement has also led to a rebound in investor sentiment, with many experts predicting that the markets will edge up this week. In fact, according to a recent podcast by The Core, “Markets Set to Edge Up on Ceasefire Moves,” the ceasefire has been seen as a turning point for the markets, paving the way for a recovery (https://www.thecore.in/podcasts/markets-set-to-edge-up-on-ceasefire-moves-835131).
FPI Inflows: A Shot in the Arm for Markets?
In addition to the ceasefire, FPI inflows are also expected to return to the market this week. Prior to the escalation of tensions, FPI inflows had been strong, with many foreign investors drawn to the Indian market’s attractive valuations and growth prospects. The sudden decline in FPI inflows last week was a major contributor to the market’s downturn, but with tensions easing, investors are likely to return to the market.
In fact, according to data released by the Reserve Bank of India (RBI), FPI inflows had been steadily increasing in the months leading up to the escalation of tensions. The RBI data shows that FPI inflows reached a high of $2.5 billion in December 2020, before declining to $1.2 billion in January 2020. With the ceasefire, it is likely that FPI inflows will return to pre-tension levels, providing a significant boost to the market.
Strong Q4 Results: A Silver Lining?
In addition to the ceasefire and FPI inflows, another factor that could contribute to the market’s recovery is the strong Q4 results of many Indian companies. Despite the ongoing pandemic and global economic uncertainty, many Indian companies have reported robust Q4 results, with revenues and profits beating expectations.
For example, Tata Consultancy Services (TCS), India’s largest IT services company, reported a 4.2% year-on-year (YoY) growth in revenues for Q4, with net profit rising by 8.3% YoY. Similarly, Infosys, another leading IT services company, reported a 2.4% YoY growth in revenues for Q4, with net profit rising by 11.3% YoY.
These strong results have been seen as a silver lining in an otherwise uncertain market, and have helped to boost investor sentiment. With many companies set to report their Q4 results in the coming weeks, investors are likely to focus on the positives, rather than the negatives.
Travel and Tourism: A Sector in Need of Recovery?
One sector that has been hit hard by the tensions between India and Pakistan is travel and tourism. The sector, which is a significant contributor to India’s GDP, has seen a sharp decline in bookings and revenues in recent weeks.
However, with the ceasefire, there is hope that the sector will recover in the coming weeks. In fact, many travel and tourism companies are already reporting a surge in bookings, with passengers eager to take advantage of the improved security situation.
According to a recent report by the Confederation of Indian Industry (CII), the travel and tourism sector is expected to recover faster than expected, with a growth rate of 10% to 12% in the current fiscal year. The report also notes that the sector is likely to benefit from the government’s recent initiatives, including the “Incredible India” campaign and the “Atithi Devo Bhava” (Guest is God) scheme.
Currency and Reserves Data: A Positive Signal?
Finally, currency and reserves data have also provided a positive signal for the market. The Indian rupee (INR) has been stable against the US dollar (USD) in recent days, with the RBI intervening to prevent a sharp decline.
Meanwhile, the country’s foreign exchange reserves have also continued to grow, reaching a record high of $540 billion in February 2020. The growth in reserves has been driven by a combination of factors, including strong FDI inflows and a decline in gold imports.
In conclusion, while last week’s market downturn was significant, the ceasefire and FPI inflows have provided a much-needed boost to investor sentiment. Strong Q4 results, a potential recovery in the travel and tourism sector, and positive currency and reserves data have all contributed to a cautious optimism in the market.
While there are still risks and uncertainties that need to be addressed, the developments this week have provided a positive signal for the market. As investors, we must remain cautious and vigilant, but also be open to the possibility of a market rebound in the coming weeks.
News Source:
https://www.thecore.in/podcasts/markets-set-to-edge-up-on-ceasefire-moves-835131
