InvestorQ : Foreign investors have continued to be net sellers despite the government rolling back the Tax hike. What is the reason for this?
NISHA Nayak made post

Foreign investors have continued to be net sellers despite the government rolling back the Tax hike. What is the reason for this?

Answer
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12 months ago


You are right that the FPIs continue to be net sellers despite the government rolling back the surcharge on equities. There are quite a few reasons for the same.

· The surcharge was only applicable to 40% of the FPIs structured as trusts not to the remaining 60% FPIs structured as corporates. For them, there is no difference from this announcement and would not base their decision on that.

· The roll back is only for capital gains on equities. Capital gains on debt are out of the purview and will still attract higher rates of surcharge. Similarly, derivatives income from futures and options will also attract higher levels of surcharge. That has not left the FPIs too pleased.

· There are larger concerns that FPIs have had due to India’s falling GDP growth rates and weak corporate results. For the June quarter, the GDP growth is just 5% and that is lower than many Asian economies like Vietnam and Indonesia.

· Globally, there is risk off sentiment prevailing as FPIs see most of the emerging market currencies including the Indian rupee as vulnerable. Rupee has also weakened from Rs.68 to Rs.72/$ in the month of August and that has kept the pressure on the FPI flows.

Most FPIs look at relative valuations and they have expressed valuation concerns over Indian markets. That is also keeping FPIs wary despite the surcharge reversal.