India is expected to see net FDI inflows of USD 35 billion this financial year, which may fall short of the figure for 2015-16, says a Citigroup report.
According to the global financial services major, FDI inflows are inching up, but the pace of increase this fiscal might as well come up short in comparison to 2015-16.
The upside potential will be substantial in the medium term, the report said, adding that gross FDI flows of USD 8.9 billion in June-July partially allays fears of a slowing trend in April-May.
Even after the surge in June-July, the gross FDI inflow so far this fiscal is 5 per cent lower than same period last year and the net tally is down 29 per cent, the report said.
"Given recent trends in FDI inflows, it is unlikely that a similar growth rate in inflows can be attained for 2016-17, but we remain hopeful that the improved trend in June-July will push net FDI inflows close to our forecast of USD 35 billion for 2016-17 (USD 36 billion in 2015-16)," Citigroup said.
The report noted that FDI surge to India might have been buoyed by improved sentiment towards emerging markets in a post-Brexit world which incidentally is also reflected in stronger portfolio flows of around USD 3.5 billion and rupee appreciation of 1 per cent in June-July.
"India has received only 2.2 per cent share of global FDI inflows during 2011-15. This indicates the upside potential of FDI inflows as the cyclical recovery strengthens and structural bottlenecks are addressed over the medium term," Citigroup said in a research note.
(Reopens DCM 18)
Meanwhile, revising its earlier stand that retail inflation will stay below 4 per cent in October, SBI Research said it will be closer to 4.3 per cent as major festivals fall in this period.
"In earlier projections we had indicated that October 2016 CPI reading will be sub-4 per cent," SBI Research said in a report.
"However, we now estimate that October 2016 CPI inflation number to be printing at more than 4 per cent, possibly closer to 4.3 per cent as observed in September 2016," it added.
The retail inflation which has crashed from 9.9 per cent in 2012-13 to 4.9 per cent in 2015-16 stood at 4.31 per cent in September.
Looking at the past trends, the report said, inflation during festive months in India (October-November) are mostly higher than the pre-festive month (September), before it starts to decline from the second fortnight of November and stays at low levels for at least 2 months.
SBI Research has predicted that the inflation would decline below 4 per cent in November.
According to the report, there has been a faster than anticipated increase in retail inflation in October because, peas and cauliflower are added to the weighting diagram of food basket, that are winter crops and initially the prices remain elevated.
"If we strip out these two items, the increase in vegetable prices month-on-month is manageable and in single digits. Second, a larger than anticipated increase in food prices in festive months also has the benefit of a larger than faster decline in subsequent months, as delivery of Rabi crops then gets bunched up in November," it added.
It noted that going by the past trends food prices could decline significantly from now on, as indeed there has been a delayed arrival of Rabi crops in market.
Accordingly, SBI Research has maintained that another round of repo rate cut (25-50 bps) is possible in the current fiscal.
