FPIs Continue Their Selling Trend, First Half of August Saw Heavy Outflow

There seems to be no one stopping Foreign Portfolio Investors (FPIs) as they have continued their selling trend in the Indian capital market. The FPIs have effectively pulled out Rs 8,319 crore from the Indian markets in the first half of August 2019.

According to the depositories, the FPIs have turned their back on the equity sector by withdrawing Rs 10,416.25 crore. The debt securities saw an infusion of Rs 2,096.38 crore, and this may be since they are a relatively safer investment avenue. 

FPIs withdrawal is not a good sign as it indicates underlying problems. In 2019’s May and June, the Indian stock markets breached record levels on the back of the landslide victory of the National Democratic Alliance (NDA) in 2019 Lok Sabha elections.

Naturally, the FPIs were attracted, and they started pumping big money into the Indian capital market, citing favourable amendments from the Modi-led government. But, the newly elected government has let down the investors by imposing higher taxation.

Also Read: FPI conversion expected to get one-time tax waiver

Nirmala Sitharaman, the current Finance Minister of India, in her maiden budget presented on 5 July 2019, increased the surcharge on the super-rich and FPIs registered as trusts and associations. This created a negative market sentiment. 

July 2019 saw FPIs pulling out nearly Rs 3,800 crore, and the trend has continued in August so far. The Finance Minister has said that the increased surcharge on the super-rich will stay for some time and the government will not offer breather in any form. 

Apart from increased taxation, other factors that have impacted the Indian capital market are the economic slowdown, liquidity crunch, reduced consumption and global factors such as Seno-American trade war, and crisis in Hong Kong and Argentina. 

Also, the trade tension between the United States and Iran escalated to such level where the former imposed sanctions on the latter in November 2018. India imports a considerable amount of petroleum from Iran and is severely impacted.