Goodman Sachs lowers its forecast for 2022 FPI flow to India by more than 80% to $5 billion

A recent note from Goldman Sachs, which pegs foreign portfolio investment in India at about $5 billion in 2022, said that inflows of foreign portfolio investors (FPI) into India may remain tepid in 2022. The downside.

“There has been $15 billion in equity outflows to date in India already, and the IPO of the largest insurer has been called off. In addition, with India’s inclusion in global bond indices not mentioned in the union budget, there is a risk to our already conservative underlying assumption to announce the inclusion India’s potential in the GBI-EM Global Diversified Bond Index in the fourth quarter of 2022,” Andrew Tilton, chief Asia Pacific economist at Goldman Sachs, wrote in a report co-authored with Santano Sengupta and Suraj Kumar.

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He added, “With our view of monetary policy normalization in India, and the US economics team’s view of an additional 200 basis point interest rate increase by the Federal Reserve in 2022, fixed income flows in India may remain tepid.”

Total equity inflows over the past three years from 2019-2021, according to a note from BofA Securities, amounted to more than $40 billion, of which nearly $14 billion remained in the first quarter of 2022 (Q1-2022).

These inflows have been driven by tax reforms with the government’s strong focus on stimulating growth and loose monetary policy. As the Reserve Bank of India is gradually moving towards tightening liquidity conditions and raising interest rates from mid-2022, as per our forecast, growth momentum will need to hold in order to attract new allocations.”

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Due to recent global developments and their impact on Indian macros, Goldman Sachs has tied an overall capital account surplus of $65 billion in calendar year 2022 (CY22), less than the $88 billion surplus on CY21, with a balance of payments (BoP) deficit. ) of $50. $1 billion in 22 years (from a surplus of $55 billion in 21 years and over $100 billion in 20 years).

Commodity price hike

Despite geopolitical concerns showing some signs of thawing, Goldman Sachs expects commodity prices to remain elevated in the future as sanctions against Russian entities are likely to remain in place for some time, further constraining supply in an already tight commodity market.

They now expect the price of Brent crude to average $120 per barrel in the second quarter of 2022, $135 per barrel in the second half of 2022 (the second half – 2022), and drop to $110 per barrel in 2023.
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