How does the market react to FII flows particularly to withdrawals? Is there a significant impact on the indexes or has the Indian market become self-reliant? We saw a hike of 25bps in the repo rate which now stands at 6.75% (since 08 February 2023). However, we have seen the Indian markets achieve new heights. The graphs show the indexes vs the FII equity inflow. We see a correlation of 0.99 between both the major Indian indexes, which was expected. However, the correlation between the BSE Sensex & FII Flow stood at 0.31 and the correlation between the NSE Nifty 50 & FII flow stood at 0.34. Hence we can say that the markets are somewhat impacted by the flows of the FII.
We see that the short-term yields shot up during the year however, the long-term yields have come down. We also see a lowering of the gap between the shorter and longer tenor which might be on the verge of almost inversion for 10 years. Although the market has been on an upward trend, the risk is equally high given the uncertain period.
The Enigmatic Pen 