‘Surcharge reversal could revive FPI flows’

Market participants are confident that the slew of measures announced by Finance Minister Nirmala Sitharaman would go a long way in restoring the confidence of foreign investors in the Indian capital market and help in reversing the outflows seen in the recent past.

As part of her announcements to boost the economy, the Finance Minister said that the tax surcharge that was announced in the Union Budget for entities with an income of more than Rs. 2 crore would not be levied on foreign portfolio investors (FPIs).

Net sellers

Ever since the surcharge was announced in July, FPIs have been demanding roll-back of the decision while ending most days as net sellers of Indian shares. The combined net selling by FPIs in July and August is pegged at over Rs. 24,500 crore.

Market participants, however, believe that Friday’s announcements could lead to foreign investors once again turning bullish on India equities.

“More than $3 billion flowed out of the Indian market since the budget and a part of that will definitely come back to the market now,” said Harendra Kumar, managing director – Institutional Equities, Elara Capital.

“This will stabilise the market as the government has clearly said that this is only a beginning. The FM’s comments clearly demonstrate that the government has identified the problem and is ready to address it. If there is no major negative news flow elsewhere during the weekend, Monday could see a huge jump in the Indian market,” he added.

Interestingly, the market was abuzz with talks on Friday that the Finance Minister would roll back the FPI surcharge, and this led to the benchmarks recover from the day’s lows and close with decent gains.

The benchmark Sensex traded in a range of more than 700 points on Friday while gaining nearly 600 points from the day’s low to close with a gain of 228 points at 36,701.

“FPI surcharge was the biggest pain point for the markets,” R. Venkataraman, co-promoter and managing director, IIFL Holdings, said, adding that the government had taken pragmatic steps to ensure that liquidity and credit flow would increase.

In a similar context, Vijay Chandok, MD and CEO, ICICI Securities, said that the withdrawal of surcharge on key investor categories like FPIs was expected to improve the inflows into the market.