Net capital flows is expected to ease off in the last quarter of 2010-11, Centre for Monitoring Indian Economy (CMIE) has said in its monthly review.
"We expect foreign investments, particularly portfolio investments, to weaken in the March 2011 quarter. We expect portfolio investments to dip from an estimated USD 12.3 billion in the December 2010 quarter to USD 5.3 billion in the March 2011 quarter," CMIE said.
Net capital flows had shot up to USD 20.5 billion in the September 2010 quarter on the back of strong inflows on the portfolio investments account. They are expected to have remained strong in the December 2010 quarter too on the back of healthy fund flows from foreign institutional investors.
According to SEBI data, FIIs have pulled out over USD 2.2 billion from the equity markets in January and February.
FII flows are expected to have remained tepid during the March 2011 quarter on account of international geopolitical tensions as well as weak domestic equity markets. The rising prices and interest rates may have also spooked foreign institutional investors, CMIE said.
Foreign direct investment (FDI) is, however, expected to continue to grow at a healthy pace. This is because the Indian economy is likely to grow at a faster pace than most international economies, the economic think thank said.
CMIE expect USD 4.5 billion worth of FDIs to flow into India by the end of the March 2011 quarter. It expect external commercial borrowings (ECBs) to be on the higher side during the quarter as corporates clamour to borrow at cheaper rates.
Domestic lending rates have risen considerably over the past 3-4 months. CMIE expects the quarter to witness a at least USD 2.4 billion by way ECBs.