The Foreign Portfolio Investors (FPIs) have reversed the course of buying as July has so far seen an outflow of Rs 3,758 crore from the Indian equity market. The recent developments such as economic slowdown, scanty monsoon, and higher taxation on the super-rich have not pleased the FPIs.
The FPIs have turned toward debt securities to save their skin, citing recent unfavourable developments in the equity market. They have invested a whopping Rs 10,524.15 crore in the Indian debt segment as per the tardiest data from the depositories.
Earlier, the FPIs had invested Rs 11,182 crore in February, Rs 45,981 crore in March, Rs 16,093 crore in April, Rs 9,031.15 crore in May, and Rs 10,384.54 crore in June in the Indian equity and debt instruments.
The Union Budget 2019-20 amended higher taxation on the super-rich, which now has adverse effects on the equity market. The FPIs have felt the pinch and have decided to exit the Indian market.
The market sentiment is affected due to the higher taxability of the FPIs listed as trusts or associations and imposition of tax on Long-Term Capital Gains (LTCG) in combination with Securities Transaction Tax (STT).
The Union Budget 2019-20 was expected to address the equity investors’ concerns, but the Finance Minister did not touch upon any of the issues. Investors were hopeful of seeing either a rollback of LTCG tax or slash in the rate; sadly, both didn’t happen. Further, the period after which an equity holding turns ‘long-term’ is relatively shorter when compared to that of other capital assets.
The slowdown in economic growth is one of the primary reasons for the FPIs to exit the Indian equity market. On top of it, the popular segments like automobile are not performing up to the mark, which has made the FPIs less confident of the Indian equity market. Furthermore, a deficit in monsoon and falling Rupee has added to the woes of the FPIs.