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FPIs: FY21 an aberration, FPIs will lap up stocks, bonds: ICICI Sec’s Saraf

Mumbai: Overseas investors, which include long-only, alternative strategy and sovereign funds, have a strong appetite for Indian equities and bonds as liquidity remains abundant across global financial capitals, said Ajay Saraf, head of investment banking and institutional equities at ICICI Securities.

“They are taking calls keeping the next two financial years in mind as FY21 is an aberration for them,” he said. “Surplus liquidity coupled with historically low bond yields are bringing investors to the equity market.”

Globally, debt market yields are falling, driving investors to equity markets that hold potential for higher investment returns. Interest rates are at historically low levels with bank fixed deposits yielding just about 4% post-tax. The proportion of equity investment is increasing in search of higher returns.

Banks are also taking advantage of record-low interest rates as they are replacing existing high-cost debt with lower coupon bonds. “Large banks would be the beneficiaries as investors are seeking a flight to safety,” said Saraf. “Many mid-tier banks are now raising capital to demonstrate confidence to their depositors.”

Companies may raise up to $27 billion of equity in 2020-21 compared with $20.25 billion a year ago, estimates ICICI Securities. This would exceed $25 billion raised in FY18 via equities.

Some companies are busy assessing the impact of Covid-19. They are likely to come up with fund-raising plans in the next half of the financial year. “Some companies are adopting a dual-track strategy — raising confidence capital for both organic and inorganic growth,” he said.

Secular growth capital raising is still a few quarters away. Companies from sectors such as speciality chemicals, technology, and pharma will likely consider raising growth capital this financial year.

Global market volatility will influence Indian markets, with the outcome of the US elections having a pronounced impact on fund flows to the emerging markets.

Indian companies are trying to raise capital before the US elections to avoid volatility. They will likely tap the capital markets again after the dust settles on the polls.

Read More: FPIs: FY21 an aberration, FPIs will lap up stocks, bonds: ICICI Sec’s Saraf

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