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ICICI Securities Report
We believe the hawkish comments by the U.S. Federal Reserve chairman at the Jackson hole symposium is an extension of the quantitative tightening cycle which began last year (CY21) and resulted in the biggest quantum of foreign portfolio investment outflows from India over a one-year period ($ 33 billion for trailingtwelve months period ending June 2022 including primary inflows).
The massive outflow, in anticipation of a 1960s-80s type of extreme QT cycle, was probably an overreaction which is correcting via inflows seen since July 2022. Although not as extreme as originally thought, we continue to be in a QT cycle which will result in bouts of volatility from FPIs although the phase of ‘unprecedented relentless selling' seems to be behind us.
The trajectory of inflation going ahead in the U.S. will be a key determinant of FPI flows in general towards emerging markets, including India. Overall FPI flows for CY22 can be clearly demarcated into the selling phase of H1 CY22 and now resumption of buying in H2 CY22.
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