A Crisil report suggested that its Financial Conditions Index (FCI) reflected improving domestic financial conditions on-month, with the gauge rising to -0.3 in October from -0.6 in September. A higher FCI value indicates easier financial conditions and vice versa.
The growth was driven by the return of foreign portfolio investors (FPIs) to Indian markets after a four-month hiatus, as well as improved credit growth and a broadly stable rupee in October, which also contributed to a higher FCI value.
Higher FPIs benefited both the equity and debt markets. FPIs were net-buyers for the first time in five months, net investing $4 billion, the highest FPI inflow in over a year. Debt market FPIs were supported by easing US yields. The debt segment led the inflows, with FPIs net-investing a seven-month high of $2.1 billion (vs $1.3 billion in the previous month), aided by a wider spread between Indian and US yields. Given the strong investments by FPIs in equities, domestic markets saw their highest monthly gains since May, with a robust inflow of $1.7 billion (vs outflows of $2.7 billion), supported by optimism over a trade deal between India and the US.
The Reserve Bank of India’s (RBI) proposed reforms to improve the credit flow in the economy by tweaking lending norms, including permitting banks to finance acquisitions, and easing regulatory norms for lending against listed debt securities and equity shares, also buoyed the equity markets.
Bank credit growth rose to a 12-month high of 11.5% from 10.4% in September. The festive season, complemented with GST cuts, likely buoyed credit demand, while easing lending rates encouraged credit offtake. As per the sectoral data in the report, the strongest credit growth was seen in personal loans (11.7%) and services (10.2%) in September. Credit growth in agriculture rose to 9% at the end of the September quarter from 6.8% at the end of the June quarter. Industry also recorded a rise to 7.3% in the quarter under review from last year’s 5.5%.
Easing lending rates in October was led by the lag in the impact of the RBI’s rate cuts between February and June. The one-year marginal cost of funds-based lending rate (MCLR) moderated to 8.55% from 8.6%. Auto loan rates also eased sharply by 15 bps on average to 9.03% while home loan rates were down 5 bps on average to 8.54%.
