August 2019 has so far seen the Foreign Portfolio Investors (FPIs) withdraw a whopping USD 2.19 billion from the Indian capital market. This outflow is the highest since October 2018. The Budget amendments are seen as the primary reason behind such massive outflow.
July 2019 witnessed FPIs selling Indian capital assets of worth USD 1.93 billion, which intensified to touch USD 2.19 in August. Increased surcharge on the super-rich and FPIs registered as trusts and associations are one of the significant factors which drove the outflow from the Indian markets.
The net FPI investment in the Indian capital market in 2019 so far stands at USD 7.21 billion in spite of the heavy selling seen for the last two months. The FPIs expected favourable amendments from the newly elected NDA government but were let down by Nirmala Sitharaman, the Finance Minister of India, in her maiden Budget presented on 5 July 2019.
The FPI’s infused Rs 9,301 crore into the Indian capital market in May 2019 when the post-poll survey of the Lok Sabha elections predicted the return of the BJP-led government. They felt the newly elected government would ease the trade regulations and be investor-friendly. But, the government had other ideas.
The tax amendments done by the BJP government made investors consider the government-aligned towards the left, which made FPIs start pulling out equity investments. If not total withdrawal, many FPIs moved their equity investments to debt segment.
Adding to the problem of taxation, global factors such as the trade tension between the United States and China, unrest in Argentina and Hong Kong, and economic slowdown has affected the Indian markets to worry the investors. The rumours of a recession is another factor that is sending chills down the spine of investors.
The last two months have seen FPIs selling Indian equities of worth more than USD 4 billion. This came at a time when the Indian stock markets were expected to far better than ever before. In July 2019, the popular indices NSE Nifty 50 and BSE Sensex fell 5.69% and 4.86% respectively.
Realising the effect of the increased surcharge on the market sentiment, the government finally decided to withdraw the increased surcharge last week. The government also decided to inject liquidity into the market by deciding to leave more money in the hands of banks. Also, credit rules are eased, much to the relief of NBFCs.