Indian stock markets are likely to see a spike in foreign portfolio investment in the coming days as the Bank of Japan’s decision to mai-ntain a negative interest rate policy — to revive its sagging d
Indian stock markets are likely to see a spike in foreign portfolio investment in the coming days as the Bank of Japan’s decision to mai-ntain a negative interest rate policy — to revive its sagging domestic growth and overcome the threat of deflation — is likely to increase the risk appetite in the global markets.
This, according to market participants, is expected to benefit Indian stock markets in the near term. Experts added that this move and new liquidity infused by People’s Bank of China had sent a positive signal to risk-averse global investors that the central banks across the globe are ready to do whatever is required to revive growth. “This will lead to risk on trade in global markets in the near term. Riskier assets like equities will be a major beneficiary,” said Gopal Agrawal, chief investment officer, Mirae Asset Global.
While the measures announced by BoJ cannot match the scale of US Fed’s 2008 stimulus programme, experts believe the negative rate regime in Japan would trigger the Yen carry trade.
The Yen carry trade refers to borrowing of Yen from a Japanese bank, converting it into US dollar and investing those funds in various assets classes like equities and bonds. As long as the exchange rate remains same, the investors would benefit from the return generated from the respective asset classes. “Since the Japanese Yen is likely to weaken further, invest-ors doing carry trade would benefit from currency depreciation as well as higher return from equities or bonds,” added Mr Agrawal.
According to Ambareesh Baliga, a senior research analyst, the BoJ’s move would help India attract both portfolio investment and FDI. “Our infrastructure sector will be a major beneficiary.”
However, Jaganna-dham Thunuguntla, head of fundamental research at Karvy Stock Broking, believes the Indian market would be able to maintain its winning momentum in the long term only if the corporate earnings growth revives. He also added that BoJ’s move is likely to lead to currency wars among export-led economies.
