Financial Markets and the Economy - Intersections

Summary Data indicates that RBI’s foreign currency (FCY) purchases are sourced from less permanent open exposures, rather than permanent FCY inflows. Monitoring such reversible open exposures may be an alternate way to gauge external stability, besides debt or import cover. With lower CAD and higher FDI, permanent FCY flows turned significantly positive from FY15, but could now be turning negative again. Cumulative open exposures have doubled since FY14, and also bear watching. There are possible ways to control the size of open exposures, and to make them more permanent. A Few Observations a) The annual and cumulative FCY purchased by the RBI across spot and forward markets is listed in column A & B of Table 1 below. These purchases can come from both permanent and transient sources.  b) Column C & D of Table 1 provide the annual and cumulative “permanent FCY flows” – defined here as the sum of current account deficit (CAD), foreign direct investmen...

Growth in Mutual Fund AUM - Reasons, Implications & Suggestions Over the past few years, India's Mutual Funds (MFs) have seen strong growth in assets under management (AUM).  MF AUM has grown from INR 9.4T in April 2014 to INR 21.4T in October 2017, at a compounded annual growth rate (CAGR) of 26%. In contrast, during the period April 2010 to April 2014, MF AUM growth was a sedate 5% CAGR.   Within this, equity MF AUM has grown fourfold from INR 1.9T in April 2014 to over INR 8T now. As a result, the proportion of equity in MF AUM has grown from 21% in April 2014 to 38% now. Possible reasons for this growth What explains this rapid growth in MF AUM, and particularly equity MF AUM?  One likely reason is that term deposit rates have moved down substantially since 2014, in tandem with the RBI easing cycle. In addition, interest income from bank fixed deposits is taxable with no inflation indexation benefit, while Mutual Fund investments stil...