India is likely to see durable foreign investments from Foreign institutional investments (FIIs) in the long-term as round-tripping of funds would be reduced.
Round tripping involves domestic money being sent to tax havens and finding its way back to India as foreign investment.
Pankaj Pandey, head of research, ICICI Securities said, “We can see some volatility in foreign money inflows in short term after the move. However, more quality foreign inflows from Mauritius are now expected in long term if economic fundamental remain fine.
In a move that will help tackle black money, India and Mauritius signed a pact for amendment of convention for Avoidance of Double Taxation and Prevention of Fiscal Evasion on Tuesday. After the amendment, India will get taxation rights on capital gains arising from alienation of shares acquired on or after April 1, 2017.
“In future, India will see more matured investments from Mauritius after the move. Foreign investments will also not be impacted with the move on immediate basis because it is applicable from next year, ” G Chokkalingam, founder, Equinomics Research and Advisory said.
Domestic stock markets fell on Wednesday on worries over future foreign equity inflows after India said it will start imposing capital gains taxes on investments coming from Mauritius starting next year. Mauritius is the top source of foreign funds into India.
The BSE Sensex opened 223.56 points, or 0.87 per cent, down at 25548.97, while Nifty 50 index opened 83.15 points down at 7,804. At 9.40 am, Sensex was trading 120.82 points down at 25,651.71, while NSE Nifty was trading 41.50 points down at 7,846.30.
In the past one year, foreign institutional investor had offloaded Rs 10,882 crore (net) from the Indian equity markets till May 10. However, they poured Rs 10,4456.40 crore in the same period a year ago.