With the corporate profitability likely to remain bleak due to the government's demonetisation drive, overseas investors are expected to pump in a moderate USD 15-20 billion, during the next fiscal, says a ICRA report.
However, the report noted that while India is likely to attract moderate FII inflows in 2017-18, a Union Budget that boosts economic growth through targeted spending while balancing fiscal considerations, may help revive FII interest in the immediate term, particularly in the country's equity market.
"With the outlook for corporate profitability remaining subdued after the note ban, a budget that boosts economic growth through targeted spending while balancing fiscal considerations, may help improve FII interest in the equity markets," ICRA senior vice president Karthik Srinivasan said.
"Nevertheless, with the muted outlook for corporate earnings and emerging sectoral concerns regarding Indian software and pharmaceuticals exports to the US, the net FII equity inflows are likely to be restricted below USD 5 billion and USD 10 billion, respectively, in 2016-17 and 2017-2018, in our view," he added.
Further, ICRA expects aggregate FII debt outflows in 2016-17 of USD 6-8 billion and will see inflows of USD 5-10 billion during the next financial year.
"The attractiveness of the debt segment from the perspective of FII investors will remain a function of the rate hikes in advanced economies and the interest rate spread available in the Indian debt markets," the report said.
The country has witnessed record FII outflows of USD 11.3 billion during October-December quarter of the current fiscal amid international and domestic factors like demonetisation of old high-value currency notes and the risk-off sentiment triggered by the outcome of US presidential election in November and the tightening of monetary policy by the US Federal Reserve in December 2016.