InvestorQ : If the RBI cuts rate now, is there a risk that foreign investors may exit India since the other markets may look more attractive?
Priyanka N made post

If the RBI cuts rate now, is there a risk that foreign investors may exit India since the other markets may look more attractive?

Answer
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NISHA Nayak answered.
6 months ago


I don’t think that should really an issue. The rate cut now will not lead to any major outflow of capital as is being feared. In fact, one reason why the RBI has normally been cautious about rate cuts is that it makes Indian debt paper unattractive for foreign investors. There are two reasons why I am saying that will not be a major concern. Firstly, the US yield curve has dipped sharply with even the 30-year bond yields under 1%. Even at 5.5% to 6% India yields, it enjoys a yield spread of more than 500 bps over the US benchmark. Secondly, with a forex reserve of $487 billion, RBI has the firepower to support the rupee. You would have seen how they supported the rupee around 74.50/$ and pushed it higher. That means; FPIs would always be looking to enter the Indian market each time RBI support to rupee emerges. That will keep FPIs routinely interested in Indian debt and equity!