The Indian stock markets recorded their worst July performance in 17 years as Sensex and Nifty went down by 4.86% and 5.69% respectively. This slump in the benchmark indices reminds us of the depreciation that happened in July 2002, when Sensex fell by 7.92%.
The Indian equity market was under immense pressure in July as the Union Budget 2019-20 did not address any of the investors’ concerns, which resulted in the foreign portfolio investors (FPIs) pressing the selling button.
Also, the downward movements that Sensex and Nifty recorded were the sharpest monthly decline since October 2018. Inopportune budget amendments, economic slowdown, liquidity crunch, and reduced consumption are the primary reasons for the fall.
The Indian capital market attracted FPIs when the BSE Sensex and NSE Nifty exceeded their record levels of 40,000 and 12,000 points respectively in May. This is when the post-poll survey predicted the return of the BJP-led government.
The FPIs infused a whopping Rs 10,384.54 crore in June, they were citing favourable amendments but were let down by Nirmala Sitharaman, the Finance Minister of India, in her maiden Budget presented on 5 July 2019.
The FPIs have gone into a rigorous selling mood since the second week of July, they have pulled nearly Rs 3,800 crore, which is the highest among the emerging markets in July. Emerging markets such as Thailand and South Korea have received a steady FPI inflow in July 2019.
The downfall of the Indian markets at the time when the rupee is up by 0.34% and downward movement in the crude prices is a worrisome factor for the Indian Government and policymakers.
The most significant reason for the FPIs to pull out of the Indian capital market is the increase in surcharge on FPIs registered as association and trusts. The Union Budget 2019-20 hiked the tax outgo of the super-rich which has made them consider the newly elected government look more aligned towards the left.