Centre for Monitoring Indian Economy

Strong FII inflows expected in second  fiscal: CMIE

Sep 30, 2012

FII inflows are expected to get stronger in the second half of this fiscal at USD 11.2 billion, Centre for Monitoring Indian Economy (CMIE) said in its monthly review.

“FII inflows are expected to get stronger in the second half of this fiscal at USD 11.2 billion as large FIIs like JP Morgan, Morgan Stanley and Deutsche Bank have started looking at India as a good long-term investment destination,” CMIE said.

The unveiling of a fresh package by the European Central Bank in September 2012 for easing the European debt crisis is also expected to help reduce global risk aversion, it said.“We expect net FII inflows in FY 2013 to be around USD 14.7 billion,” it added.

The FDI inflows during the year are also expected to remain healthy at USD 20.8 billion, CMIE noted. CMIE expects the situation to improve going forward.Current account deficit is expected to reduce a bit in the remaining quarters and capital inflows are expected to pick up. A major improvement is expected to be seen in FII inflows.

The reduction in global risk aversion following the announcement of new measures by the ECB, near zero interest rate regime in the West and high interest rates prevailing in India are expected to lead to an increase in external commercial borrowings to USD 11.4 billion in FY 2013 from USD 10.3 billion in FY 12.It is expected that the net inflows of NRI deposits will increase further to USD 12.4 billion from an all-time high of USD 11.9 billion in FY12.

With zero interest rates prevailing in the US and Europe, Indians abroad are expected to invest more aggressively in NRI deposits, it said.Oil demand to grow 5.2% on poor rains, power shortages: CMIE

Consumption of petroleum products is expected to increase by 5.2 percent this fiscal from 4.4 percent a year ago, according to the Centre for Monitoring Indian Economy (CMIE).“The total consumption of petroleum products is expected to grow by 5.2 per cent this fiscal compared to 4.4 per cent growth logged in last fiscal, driven primarily by a spike in diesel demand, which has already more than doubled in the first quarter and will see further fillip following the poor monsoons in some states,” CMIE said in its monthly monitor.

The report was prepared before the 12 percent hike in diesel prices last month. The report further notes that the ongoing economic crisis in Europe and the US and the slowdown in China will weaken global demand for oil.

Diesel consumption increased 10.9 percent during April- July as against 5 percent rise in the corresponding period last year, it said.

“The demand for diesel is expected to rise on account of power shortages and deficiency in rainfall. Deficient rains will lead to higher use of pump sets for irrigation resulting in an increase for diesel,” CMIE said.

The sharp reduction in rainfall over the North and Central regions caused the overall rainfall deficiency to 7 percent during the week ending 26th September from 5 percent in the previous, according to the Met department data.

The power and agriculture sectors account for nearly 20 percent of the total diesel consumption, the report said, adding that diesel that accounts for 40 percent of petroleum products consumption is expected to go up further this fiscal.

The report notes that the expected pick up in the auto sector will also augur well for diesel demand.“Sales of commercial vehicles are likely to pick up in the remaining months of the year, which will support the growth in demand for diesel. As diesel is cheaper by around Rs 25 per litre as compared to petrol, we expect demand to shift in preference of diesel powered passenger cars. Diesel is also expected to replace CNG on account of diminishing price gap between the two fuels resulting in demand for diesel.