Crisil's Financial Conditions Index signals improvement in October, FPI flows boost sentiment

Kolkata, Nov 11 (PTI) Crisil's latest Financial Conditions Index (FCI), which rose to -0.3 in October from -0.6 in September, showed that domestic financial conditions registered marked improvement in October amid "heightened optimism over India's economic output".

This marks easier conditions but still below the long-term average.

Crisil's FCI combines key market indicators such as interest rates, bonds, equities, and exchange rates into a single measure to show how tight or easy financing conditions are in an economy.

The FCI's rise was primarily driven by a return of foreign portfolio investors (FPIs) to Indian markets after four months, energising both debt and equity segments amid easing US yields and heightened optimism over India's economic outlook as well as anticipated trade advances with the United States, the latest analytic report said.

Crisil's report points out that October witnessed robust FPI inflows, with investments totaling USD 4 billion, the first after four months and highest in the year so far.

Debt segment inflows led with USD 2.1 billion, while equities rebounded with USD 1.7 billion, reversing previous outflows.

Domestic markets posted their strongest monthly gains since May, aided further by the Reserve Bank of India's (RBI) proposed reforms to improve credit flow by revising lending norms, alongside a broadly stable Rupee and improving credit growth.

Despite these supportive factors, moderating liquidity emerged as a drag, attributed to increased currency circulation during the festive season and likely RBI dollar sales aimed at protecting the rupee.

Nevertheless, the liquidity surplus was cushioned by a 25-basis point cut in the Cash Reserve Ratio (CRR), which helped buffer the banking system. Indian equity indices, the Sensex and Nifty 50, rose 2.2 per cent each on average in October, with the RBI raising its GDP growth forecast to 6.8 per cent from 6.5 per cent.

The rupee remained steady at 88.4 to the dollar, supported by FPI flows and RBI intervention, while bond yields held firm at 6.52 per cent. Brent crude prices eased 4.9 per cent on-month and were 14.6 per cent lower on-year, driven by supply adequacy and slowing global growth concerns, the report noted.

Looking ahead, Crisil expects the FCI to remain within the comfort zone for the rest of fiscal 2026, buoyed by the CRR cuts and potential for further rate reductions.

Soft inflation, tax relief, and regulatory reforms are anticipated to bolster private consumption, with GDP growth projected at 6.5 per cent for the fiscal year. However, the outlook remains exposed to volatility in foreign capital flows and currency movements. PTI BSM NN