Foreign Institutional Investors (FII), who deserted the Indian bourses last year, leaving them to face the heat of the global economic crisis are likely to make a come back in the second half of this year.
FIIs, which pulled out over $13 billion from the Indian stock markets in 2008, following severe credit crunch in the US and Europe are likely to again gain momentum in the later part of this year.
According to a latest India strategy report by BNP Paribas, currency appreciation could be a significant driver of FII inflows.
"Our outlook on rupee appreciation implies that FII inflows into Indian equities could restart in H2CY09. Concerns on capital outflows still exist (due to deleveraging in developed markets), but our empirical analysis shows currency appreciation is a significant driver of FII inflows," BNP Paribas analyst Manishi Raychaudhuri said in the report.
The report stated that even as there is an ongoing debate about whether currency appreciation causes FII inflows or vice-versa.
Meanwhile, not giving any prediction about the time period by when the FII flows into the country may be revived, Coxe Advisors LLC Global Capital Markets Strategist and CEO Donald Coxe told PTI that with return of confidence in the market the inflows would pick up.
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"By some estimates, $650 billion in dollar-denominated bank loans to Emerging Market private sector banks need to be refinanced or rolled over in 2009, and that is a steep overhang.
If the refinancing moves smoothly for even a few months, there will be a huge return of confidence and FII will respond favourably," Coxe said.