You are right that FPIs were net sellers in the month of August and were net buyers in the debt segment. Normally, equity buying is driven by attractiveness of the economy while debt inflows are driven by the real interest rates and the stability of the currency. In this month the real interest rate differential of 5% between the US and India helped to sustain the inflows into debt. Here are the key numbers and the comparative data for you to look at.

· The latest FII data put out by the NSDL and CDSL reveals that in the month of August, foreign portfolio investors (FPIs) withdrew a net amount of Rs.17,592 crore from equities but pumped in a net sum of Rs.11,672 crore in the debt segment. When you combine these two asset classes, the total net outflow was Rs.5,920 crore.

· This number needs to be looked in the light of the government announcement on withdrawal of FPI tax on equity capital gains. However, this did not change the sentiments of FPIs. Despite equity gains not attracting surcharge and debt gains attracting surcharge, FPIs continued to buy into debt and sell out of equities.

· This is the second month in succession when FPIs had pulled out on a net basis. In July, the FPIs had pulled out a net amount of Rs.2,986 crore from the equity and debt markets; again buying into debt and selling out of equity. In fact, the FPI selling in equities started after the Union Budget announcement on July 05th which brought up controversial announcements like the FPI surcharge, buyback tax, no scrapping of capital gains tax on LTCG and the announcement of forced dilution of promoter stake to increase the public shareholding.

· The budget was, in a way, a sentiment changer for FPI flows. Before the announcement of enhanced tax on FPIs structured as trusts in the Union Budget for 2019-20, FPIs turned to become net sellers after being net buyers for five months in succession. Just to give you an example, FPIs had infused net Rs.10,385 crore in June, Rs.9,031 crore in May, Rs.16,093 crore in April, Rs.45,981 crore in March and Rs 11,182 crore in February and these inflows had been largely driven by equity market inflows.

What should worry the government is that despite the announcement of the dilution of FPI tax surcharge, the sentiment has not change. This is most likely risk-off buying where investors seek safe havens like dollar assets, yen assets, gold etc. Emerging market equities like the case in India are normally avoided in such circumstances.