Withdrawal of enhanced surcharge on FPIs a big positive for markets, could reverse outflows: Analysts

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Published: August 23, 2019 8:44 PM

The decision to levy enhanced surcharge, announced in the Budget, had spooked the stock markets.

fpi, stock markets, nirmala sitharamanThe government’s move is aimed at encouraging investment in the capital market, finance minister Nirmala Sitharaman said.

The rollback of enhanced surcharge on foreign portfolio investors is a shot in the arm for the sagging equity market and a sentiment booster for the Indian economy, analysts said following announcement of a slew of measures by the government.

The decision to levy enhanced surcharge, announced in the Budget, had spooked the stock markets.

In a post-market conference, Finance Minister Nirmala Sitharaman announced various measures to prop up the slowing economy.

Giving in to the demands of overseas investors, the government rolled back enhanced surcharge on foreign portfolio investors levied in the Budget.

“Withdrawal of enhanced surcharge on FPI, is a big positive for Indian markets as it could reverse the outflows seen since post budget. It should also help INR appreciation. Overall a good sentiment booster for the Indian economy,” Rusmik Oza, Head of Fundamental Research, Kotak securities said.

Surcharge on long and short-term capital gains arising from transfer of equity shares has been withdrawn, the minister said.

“The measures are wide ranging and include short term as well as long term remedies. Instant removal of FPI tax is a very short term measure with long term impact,” BSE MD and CEO Ashishkumar Chauhan said.

The measures will lead to a change in trend and the outflows from the equity market would be reversed, VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services said.

“Withdrawal of the surcharge on FPIs is a shot in the arm for the sagging market. One can now expect reversal of the FPI selling. The market is likely to look up from now on,” Vijayakumar said.

Mustafa Nadeem, CEO, Epic Research said this is a very positive move for the market.

“The rollback of higher surcharge on FPI as well as domestic investors is a welcome move since it was one of the factors that put a lot of dent on investors sentiment, specifically FII and FPIs,” Nadeem added.

The government’s move is aimed at encouraging investment in the capital market, the finance minister said.

“These are just the kind of measures which were required to boost the economy. In the immediate term, we can expect the markets to bounce back on Monday with a gap up opening, and continue the rally for a few sessions to come,” Amit Gupta, Co-Founder and CEO TradingBells said.

However, Amit Maheshwari, Partner Ashok Maheshwary & Associates LLP said that FPIs having business income would still be impacted.

“Surcharge will no more be charged on short-term capital gain (Section 111A) and long-term capital gain (Section 112A) from the sale of listed equity shares and equity oriented mutual funds. However, surcharge chargeability will continue to impact the taxability on the income from derivatives and from unlisted shares,” he said.

“Also it has to be noted that this surcharge goes only for capital gains generated on listed shares and not on unlisted shares,” he added.

The government also unveiled various measures to address the slowdown in the auto sector.

The measures to support auto sector include lifting ban on purchase of vehicles by government departments, and allowing additional 15 per cent depreciation on vehicles acquired from now till March 2020.

The revision of one-time registration fees has been deferred till June 2020.

Garima Kapoor, Economist, Elara Capital said the main takeaway of today’s announcements by the Finance Minister is that they are aimed at restoring confidence and tackle the challenges of weak demand.

“Withdrawal of surcharge on FPIs and domestic investors would help in alleviating the tax burden on investors in capital markets. Likewise, quicker transmission of rate cuts, faster recapitalisation of banks and external benchmarking of rates are likely to aid credit off take,” Kapoor added.

She further said that most importantly, recognition of issues in the economy and the measures to address them is itself a positive signal and will help ease concerns on growth slowdown.

“Finally the government has taken measures to boost the economy and also address concerns raised by the tax payers and investors. Specifically to address the weakness in auto sector, there are number of steps taken to provide financing at lower interest rates and tax benefits. This should help the sagging auto sector,” Gaurav Dua, Senior VP, Head – Capital Market Strategy, Sharekhan by BNP Paribas noted.

Though this will aid the sentiments, it is too early to take a call on the impact of the measures announced on consumer demand, corporate earnings and equity markets, he added.

“In an attempt to provide a stimulus to the economy and in turn to the automobile sector. Revision of one-time registration fees deferred till June 2020 – This according to us is a very important boost to the sector as this would have had a significant impact on demand in the short term,” Ashwin Patil, Senior Research Analyst (Auto Sector), LKP Securities said.

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