Foreign Institutional Investors

In May, Indian equity markets saw the highest outflows in Asia, with Foreign Institutional Investors (FIIs) withdrawing a substantial $2.89 billion. This marked the largest monthly FII outflow since January 2024. Provisional data from the National Stock Exchange (NSE) revealed that foreign investors pulled out approximately Rs 24,000 crore from Indian markets in May, the most severe selloff among Asian markets. On May 30, FIIs dramatically increased their net shorts from 5,000 contracts to 2.97 lakh contracts in a single session. Concurrently, FIIs reduced their long positions by 80%, dropping from 257,000 contracts to 51,000. This significant reduction caused the FII long-short ratio to plummet from 50% to just 13% in one day, reflecting heightened caution ahead of the highly anticipated election results.

On the same day, FIIs net sold a total of Rs 19,417 crore in Indian equities, including Rs 3,050 crore in cash, Rs 7,925 crore in index futures, and Rs 8,442 crore in stock futures. Additionally, FIIs have pulled out nearly Rs 46,000 crore from financial stocks in the first four months of 2024. After offloading financials worth over Rs 30,000 crore in January and nearly Rs 10,000 crore in February, FIIs were net buyers in the sector in March before pressing the sell button once again in April, with last month’s selling amounting to around Rs 9,300 crore.

United Nations Report

The World Economic Situation and Prospects as of mid-2024 updates the World Economic Situation and Prospects 2024 released on January 4, 2024. Prepared by the Global Economic Monitoring Branch in the Economic Analysis and Policy Division of the United Nations Department of Economic and Social Affairs, the report forecasts the world economy to grow by 2.7 percent in 2024, an increase of 0.3 percentage points from the January forecast, and by 2.8 percent in 2025, an increase of 0.1 percentage points. These upward revisions mainly reflect improved prospects in the United States and several large developing economies, notably India and Brazil.

According to the report, India’s economy is forecasted to expand by 6.9 percent in 2024, up by 0.7 percent from the January 2024 report, and by 6.6 percent in 2025, unchanged from the January report. This growth is mainly driven by strong public investment and resilient private consumption. Although subdued external demand will continue to weigh on merchandise export growth, pharmaceuticals and chemicals exports are expected to expand strongly. Consumer price inflation in India is projected to decelerate from 5.6 percent in 2023 to 4.5 percent in 2024, remaining within the central bank’s 2 to 6 percent medium-term target range.

Dipping FDI Inflows

Foreign direct investment (FDI) equity inflows in India declined by 3.49 percent to USD 44.42 billion in 2023-24 due to lower investments in sectors such as services, computer hardware and software, telecom, auto, and pharma, according to government data. In comparison, FDI inflows stood at USD 46.03 billion during 2022-23. However, inflows during January-March FY24 rose by 33.4 percent to USD 12.38 billion, up from USD 9.28 billion in the same period the previous year.

The total FDI, which includes equity inflows, reinvested earnings, and other capital, declined marginally by one percent to USD 70.95 billion in 2023-24, down from USD 71.35 billion in 2022-23, according to data from the Department for Promotion of Industry and Internal Trade (DPIIT). During the last fiscal year, FDI equity inflows decreased from major countries, including Mauritius, Singapore, the US, the UK, UAE, Cayman Islands, Germany, and Cyprus. In contrast, inflows increased from the Netherlands and Japan.

Sectorally, inflows contracted in services, computer software and hardware, trading, telecommunications, automobile, pharmaceuticals, and chemicals. Conversely, construction (infrastructure) activities, development, and power sectors registered healthy growth in inflows during the reviewed period. Notably, FDI equity inflows into India had previously declined by 22 percent in 2022-23, as reported by Asia Law Portal.

ASEAN-India Trade in Goods Agreement

The 4th Joint Committee meeting for the review of the ASEAN-India Trade in Goods Agreement (AITIGA) took place in Putrajaya, Malaysia, from 7-9 May 2024. Delegates from India and all 10 ASEAN countries participated in the discussions. The review of AITIGA, aimed at making it more trade-facilitative and beneficial for businesses across the region, began in May 2023. The Joint Committee, which has met four times so far, finalized its Terms of Reference and Negotiating Structure in its first two meetings, and initiated the review negotiations in its third meeting held from 18-19 February 2024 in New Delhi.

Eight Sub-Committees have been constituted to address different policy areas of the Agreement. Five of these Sub-Committees have started their discussions and reported their outcomes to the 4th AITIGA Joint Committee. Four Sub-Committees—’National Treatment and Market Access,’ ‘Rules of Origin,’ ‘Standards, Technical Regulations and Conformity Assessment Procedures,’ and ‘Legal and Institutional Issues’—met physically in Putrajaya, Malaysia, alongside the 4th AITIGA Joint Committee. The Sub-Committee on Sanitary and Phytosanitary met earlier on 3rd May 2024. The Joint Committee provided necessary guidance to these Sub-Committees.

ASEAN is one of India’s major trade partners, accounting for 11% of India’s global trade. Bilateral trade stood at USD 122.67 billion during 2023-24. The upgradation of AITIGA is expected to further boost bilateral trade.