Overseas investors have pulled out a net amount of Rs 3,014 crore from the Indian capital markets this month so far, but the trend may reverse following the removal of enhanced surcharge on FPIs, experts said.
According to depositories data, foreign portfolio investors (FPI) withdrew a net amount of Rs 12,105.33 crore from equities, but pumped in Rs 9,090.61 crore into the debt segment during August 1-23.
This has translated into a total net outflow of Rs 3,014.72 crore from the capital markets (both equity and debt).
"Out of 15 trading sessions, foreign investors were net buyers in only two sessions. The sell off in equities continued due to a mix of factors including US Fed rate cut, US-China trade war and the post Budget tax hike on high income investors," said Harsh Jain, co-founder and COO of Groww.
The Centre on Friday announced a slew of measures to revive growth momentum, including rollback of enhanced super-rich tax on foreign and domestic equity investors imposed in the Budget.
The measures announced by Finance Minister Nirmala Sitharaman on Friday and the promise of more will be a shot in the arm for the bulls, who have been subdued for nearly two months. Experts have given the thumbs up to the government for taking steps to restore confidence among investors and businesses. However, they say more will be needed.
Stocks of firms in the automobile, banking, and real estate sectors, and those of non-banking financial companies (NBFCs) are likely to remain under focus. Meanwhile, the withdrawal of the higher tax surcharge on foreign portfolio investors (FPIs) may pause selling. However, they could go slow with their investment, given the global risks.
Prior to the announcement of enhanced super-rich tax in the Union Budget for 2019-20 in July, FPIs were net buyers for five consecutive months.
“These measures and the expectations of more over the next couple of weeks will likely improve investor sentiment and should drive at least a short-term bounce, because the government has given a clear signal that it acknowledges an economic slowdown and is willing to act promptly to address the issues,” wrote Mahesh Nandurkar, India Strategist, CLSA, in a note tiled ‘Government Says ‘We Care’’.
While the markets are set for an immediate surge, a prolonged upward climb is ruled out, given the precarious US-China trade situation and economic slowdown, both globally as well as domestically.
FPIs had infused a net Rs 10,384.54 crore in June, Rs 9,031.15 crore in May, Rs 16,093 crore in April, Rs 45,981 crore in March and Rs 11,182 crore in February into the Indian capital markets.
However, the position reversed in July, when FPIs turned net sellers to the tune of Rs 2,985.88 crore.
Now, with the withdrawal of the enhanced surcharge on FPIs, confidence in the market is likely to be restored, analysts said.
"One can now expect reversal of the FPI selling. The market is likely to look up from now on. However, sustained rally in the market will happen only when we have visibility on good earnings growth and reversal of the slowdown underway in the economy which requires more reforms."The Finance Minister has announced that she will come back with more reforms soon. So, there is hope," said V K Vijayakumar, chief investment strategist at Geojit Financial Services.
Seven of the 10 most valued domestic companies cumulatively lost Rs 86, 879.7 crore in market valuation last week, with FMCG major ITC taking the biggest hit.
In a weak broader market, Reliance Industries Ltd (RIL), HDFC Bank, HDFC, Kotak Mahindra Bank, ICICI Bank and SBI were the other firms which witnessed a drop in their market capitalisation (m-cap), while TCS, HUL and Infosys finished with gains.
The m-cap of ITC dropped by Rs 20,748.4 crore to stand at Rs 2,89,740.59 crore.
It was followed by SBI whose market cap tumbled Rs 17,715.4 crore to Rs 2,41,946.22 crore.
The m-cap of HDFC Bank tanked Rs 17,335.3 crore to Rs 5,91,490.98 crore and that of ICICI Bank declined by Rs 15,084.5 crore to Rs 2,55,484.91 crore.