FPI plight in Indian equity market in July; surcharges cost investments

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Published: August 1, 2019 6:39 PM

Foreign portfolio investments in Indian equity market saw a major dip in the month of July. FPI pullout from equity stood at a 9-month high of over Rs 12,000 crore in July.

foreign investments, FPI, FII, foreign investors, dollar, euro, rupee, weak rupee, trade war, US-ChinaFPI investors had expectations of stronger growth and a market-friendly government, but the lack of growth-oriented decisions and imposition of taxes on profits have pushed back the investors.

Foreign portfolio investments in Indian equity market saw a major dip in the month of July. FPI pullout from equity stood at a 9-month high of over Rs 12,000 crore in July, according to National Securities Depository Limited (NSDL). In the first six months of 2019, foreign portfolio investors have net invested around Rs 78,000 crore in the Indian equity market. Before July, the Indian equity market witnessed an FPI outflow of Rs 28,921 crore in October 2018, due to weak rupee and possibility of a trade war.

FPI investors had expectations of stronger growth and a market-friendly government, but the lack of growth-oriented decisions and imposition of taxes on profits have pushed back the investors, said veteran investment advisor Sandip Sabharwal to Financial Express Online.

To attract FPI investment into India, some steps were announced in the Union Budget 2019-20 which include, streamlining and rationalising the KYC norms for FPIs and permitting FPI investments in infrastructure debt funds, to be transferred or sold to any domestic investor within a specific lock-in period. But the increase in surcharge on individuals having taxable income of more than Rs 2 crore has hit the foreign portfolio investors, especially those who have registered themselves as trust, and not companies.

However, to minimise the effect, Finance Minister Nirmala Sitharaman had suggested the FPI trusts to convert into companies. But, the trusts say that it is a cumbersome process and not a practical solution. Nirmala Sitharaman later clarified that the government did not intend to hurt the FPI investors or the investments that come via FPI route.

In the new budget, surcharges were raised for those having annual taxable income more than Rs 2 crore. The surcharge of 25 per cent has been imposed on those having taxable income between Rs 2 crore and 5 crore, which was 15 per cent previously. Similarly, the surcharge of 39 per cent has been imposed on those with taxable income over Rs 5 crore, which was 35.88 per cent before the new budget.

 

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