Both Europe and US to come out of the crisis have printed excess money and flushed all the liquidity into the system. The average growth rate in US is mere 1.5%. In such a scenario it just doesn't make any sense to invest all that money into their country. Thus the Financial Institutions, stock broking houses, Mutual fund industries overseas want a place where the growth is robust and sutainable.
Two countries - India and China where a 8% GDP growth sustainable year on year is attracting all the excess liquidity being printed overseas... thus taking our markets higher and higher.
Dear Ashwini,
ReplyDeleteGood Point and sounds logical.. but can you expand on the possible outcomes of this now ??
Will this money be 'hot money' or will they continue to invest and book profits regularly but not withdraw completely to a great extent as done earlier - Since the west has realised that India,China (and Brazil) are best places to Invest for good returns ? What are your views sir?
Hi Samant,
ReplyDeleteMoney is money and shouldn't be confused with 'hot money' or any other type!
In the immediate term - the money coming in can have an affect on inflation. The RBI on one had is incresing the repo and reverse repo rates to suck out excess liquidity and curb inflation; and on the other hand we have FIIs pumping in money!
Keep one thing in mind - when FIIs buy and sell their quantities are so huge that it always drives the market to higher highs or make them see lower lows. That will always be the case and shouldn't be surprising. After all $1=46INR! What they invest here is like their change!