FPIs sell Rs 4,120 cr in July, highest this year

By Ravi Dutta Mishra

Mumbai, July 17 (IANS) Foreign portfolio investors, a major driver of the Indian stock market, have pulled out Rs 4,120 crore in the month of July till date, the highest outflow markets have seen in 2019.

FII's sharp selling comes in reaction to the higher surcharge on the super-rich proposed in the Union Budget on July 5, which is affecting around 40 to 50 per cent of the FII money. The market was looking for a stimulus in the first budget of the new government to kick start a slowing economy. However, absence of any such big ticket measures has become a big disappointment for investors.

Also known as "hot money" because of the quick outflow or inflow at the slightest hint of economic weakness or strength, the performance of Indian stock market and FII equity investment is very closely interlinked.

Historically, heavy outflow has been seen around stiff macro-economic scenario like during the financial crises of 2008 and the most recent one being in October last year.

The sell off in the yet-to-be-concluded month of July comes second to the massive out flow in October, 2018 when a slew of factors like weak macro situation of our country, US Fed's rate hike, high oil prices, weak dollar rupee equation and ongoing US-China trade tension.

The Pulwama attack on February 14 was another such event. Foreign Institutional Investors (FIIs) pulled out over Rs 3,000 crore in just three days after the attack.

The likely hood of FIIs to remain in a sell mode is also high as both the Central Board of Direct Taxation (CBDT) and Finance Minister Nirmala Sitharaman have hinted no change in stance on the higher surcharge levied on the super-rich.

Aiming to assuage the markets, which have bled heavily of late owing to the surcharge, CBDT Chairman P.C. Mody earlier in the week said that the proposal was not intended towards the Foreign Portfolio Investors (FPI).

"The base rate was not changed, it was just the surcharge which was changed.. as a collateral damage if you can call it, it affected the FPIs of AIF category-III... There again, the option is to go to the corporate structure. I don't see any kind of differential treatment," Mody said at a CII event.

The Budget on July 5 raised surcharge on the super-rich. Accordingly, those with an annual income of between Rs 2 crore and Rs 5 crore would be levied a surcharge of 25 per cent from 15 per cent previously.

For those earning Rs 5 crore or more annually, the surcharge has been increased from 15 per cent to 37 per cent. With this, the effective tax rate will go up to 39 per cent for those in the Rs 2-5 crore income slab and 42.74 per cent for for those in Rs 5 crore and above group.

Most FPIs earn more than Rs 5 crore in a year and hence would come under the highest income tax bracket. They generally route their investments through trusts and body of individuals in the country's capital markets.

(Ravi Dutta Mishra can be contacted at ravidutta.m@ians.in)