InvestorQ : Are there prospects of FII flows reversing to negative once again?
manisha Kolvenkar made post

Are there prospects of FII flows reversing to negative once again?

Answer
user profile image
Mahima Roy answered.
3 months ago


It may be early to say as India seen positive FII flows for the first time in the month of June 2020. There are a few important factors to consider. For example, in the midst of all this clamour and euphoria, there is the lag effect of COVID-19 that the Indian markets cannot really ignore. This lag effect is likely to work on the FII flows in a number of ways.

At a supply level, the disruption of supply chains in terms of raw material availability and last mile markets may still be a major challenge for the Indian companies. That will determine the course and direction of FII flows. Also, much of the labour force that migrated back to the villages may take some time to come back as the fear needs to subside in their minds.

Let us not forget the demand factor as reflected by the income effect. This may take a much longer time to repair. Millions of the most vulnerable population have lost their jobs, or their principal livelihoods. Many small traders have incurred losses in their business. This could create a huge lag effect on demand. That could challenge FII flows in the future.