FII inflow till now unlikely to be inflationary: Nilesh Shah

Nilesh Shah, Deputy Managing Director, ICICI Prudential AMC in a chat with ET Now talks about the FII inlow and likely impact on inflation.

The amount of dollar inflow that we have seen as a result of FII buying. 25,000 crores already in the kitty, we are looking at the month of April till now, so we have still got the rest of the year to go. What is the RBI going to do market sequestration? Are we going to see inflation rear up as a result of this huge amount of money inflow into the system? What is the strategy you think that is going to come out of the RBI on this?

We need to keep in mind that $4 billion of flows which came in in the month of March, they were from the debt FIIs. Now the debt FII limit is almost filled up and second, the month of March had exceptionally higher interest rates vis-à-vis April and May. So it will be fair to assume that that $4 billion is not a repetitive flow, it was a one-time flow.

Second thing even though the FIIs have brought in so much of money, it has not resulted into any reserve accretion. Somewhere the payment on probably the trade deficit side, payment on some of the other items of imports like defence equipments, something has taken away and absorbed all these inflows and net net our reserve accretion has more or less remained stagnated between $270 billion to $280 billion and hence all these inflows have not resulted into liquidity surge in the system.

It is unlikely to be inflationary. As long as RBI is able to manage the inflows without getting added into the reserves and hence not releasing liquidity into the domestic system, it cannot be inflationary.