'India's strong external economic management may push equity markets higher'

India's external debt has grown by just 1% from March 2015 to $480.2 billion by December 31, 2015. Most interesting is that the share of short-term external debt (which is crucial element in servicing the foreign debt) has come down significantly from 23.6% at the end of FY13 to 17% as on December 31, 2015. For the 5 years ending FY2013, the share of short-term external debt remained at around 20%.

India's current account deficit has also narrowed down substantially to just 1.3% of GDP in the December 2015 quarter to $7.1 billion all the way from its recent record high of 4.9% in the April-June 2013 quarter. The foreign direct investment inflows, which compliment domestic investments for the economic growth, also increased by over 40% year-on-year to $29.44 billion during the April-December 2015 period from $21.04 billion during the corresponding period of the previous year. Ever since the Budget was presented, the FIIs have also poured in nearly Rs 22,000 crore into the Indian equities.

Thanks to falling trade deficit and robust capital inflows, India's forex reserves hit a record high last month at $355.94 billion. Apart from these sources of capital flows from worldwide, the bilateral relationships with some major economies are also providing a lot of optimism. Earlier the Japanese government committed an investment of over $34 billion in India. Now the Japanese corporates are estimated to hold a cash pile of $2.2 trillion – the positive impact of such cash pile with the Japanese companies is already visible in India. Last week it was reported that Yokohama Rubber Company of Japan has decided to buy Alliance Tire Group which has two plants in India for $2.2 billion.

A few days back, Saudi Arabia has promised significant investments in India's infrastructure projects during the visit of the Indian Prime Minister. Earlier, the UAE had promised to invest several billions in India. Aramco, the world's largest oil firm from Saudi Arabia with crude reserves of about 265 billion barrels, has revealed its plans to make a major investment in India's petroleum sector as it considers India the most preferred destination to invest at a time when the global economy is in distress.

The only drag on the external economic front has been continued de-growth in India's exports for the 15th month in a row as the world economy is going through significant deflationary pressures. However, India is making credible improvements on many other areas of its external economy. Also, with better monsoon forecast from the research agencies in South Korea and Europe, the domestic equity is likely to see a substantial boost this calendar year.