FII redemption, rising forex reserves and surging exports: Three things Teji Mandi investors should know on May 10, 2021

FII Redemption

While the stock market is hovering around all-time high levels, foreign investors have seemingly triggered the panic button.

Amid worries over the intense second wave and possible impact on the economy, the FIIs are continuously pulling out from the Indian equities. They have withdrawn Rs 5,936 crore in the first week of May after the withdrawal of Rs 9,659 crore in April. Before that, the FPIs had infused money in the preceding six months.

While FPIs are pulling away, domestic institutional investors are pumping the market currently. The DIIs have been net buyers in Indian equities and invested Rs 5,204 crore and Rs 11,088 crore during March and April, respectively. They have been the net buyers even in May with Rs 2,135 cr invested so far.

FII investment is crucial for markets to maintain their current levels. Although DIIs are pumping in the money currently, they can never match the might of FIIs. Hence, the market may find it difficult to sustain, if FIIs redemption continues.

Rising Forex Reserves

India's foreign exchange reserves increased by $3.913 billion to reach $588.02 billion during the last week of April 2021. It was at $584.107 billion a week before.

The rise in reserves is due to the increase in foreign currency assets (FCAs), which rose by $4.413 billion to $546.059 billion. Gold reserves, in the meantime, declined by $505 million to $35.464 billion in the reporting week.

Forex reserves are external assets owned by India and controlled by the Reserve Bank of India. They are in the form of gold, SDRs (special drawing rights of the IMF), capital inflows to the capital markets, FDI, and external commercial borrowings.

The rising forex reserves have a lot of significance for India in terms of its financial credibility in the international market. It helps to manage India’s external and internal financial issues and demonstrates the strength of a country to meet its external obligations.

Dream Run For Exports

India's exports have expanded their staggering run into the first week of May. The exports have grown by 80% YoY to $7.04 billion during the first week of May. It was at $3.91 billion and $6.48 billion respectively in the same week of May 2019 and 2020.

Imports are also up by 80.7% YoY to $8.86 billion during the week as against $4.91 billion in the same period last year and $10.39 billion in 2019.

India's exports have continued to expand after seeing a 3x jump to $30.21 billion in April from $10.17 billion in May last year. Gems and jewellery, jute, carpet, handicrafts, leather, electronic goods, oil meals, cashew, engineering, petroleum products, marine products, and chemicals are major commodities reporting a major rise in exports.