Weak quarterly results intensify FPI’s selling momentum

Mumbai, July 31 (IANS) Poor earnings on top of the increased tax-surcharge on the super-rich, adversely impacting Foreign Portfolio Investors (FPIs), has resulted in an exodus of foreign funds in the July month.

Whole host of companies from automobile makers, cement manufacturers, fast moving consumer goods makers are feeling the pinch of a slowdown in consumption which is showing up on India Inc's balance sheet.

FPIs, a key driver of the stocks markets have been in a sell mode since the Union Budget was proposed on July 5. The outflow intensified after Finance Minister Nirmala Sitharaman denied a roll-back of the controversial tax on surper-rich.

"FII has been largely negative post unfriendly budget and weak quarterly numbers are intensifying this selling momentum," said Mustafa Nadeem, CEO, Epic Research

Sensex has lost over 2,000 points since the Budget was tabled on July 5. On Tuesday, the market's closed at 37,397.24 after it had surpassed 40,000 just ahead of the Budget day.

Indian shares fell the steepest during the month after Finance Minister Nirmala Sitharaman made it clear that the super-rich tax is here to stay, dashing hopes of any roll-back in the proposed tax, which continue to dampen investor sentiments.

Indian markets were poised to hit fresh highs after the Budget, taking further the positive momentum from the general elections but the lack of growth measures and the controversial tax on the super-rich erased even the gains made post the polls.

"The risk reward ratio does not justify for the FPI," Rusmik Oza, Head of Research, Kotak Securities told IANS.

Till July 30, FPIs have sold over Rs 15,000 crore worth of stocks, making the month of July as the worst in terms of FPIs exit in 2019.

The impact of the Budget on the flows is evident as the FPI flows during the January-March 2019 quarter were the highest in a quarter in two years with equity inflows of $4.9 billion in March 2019 alone.

Further, FPI investments in hybrid instruments experienced a sharp increase during February-March 2019 with a total inflow of $523 million during this period, RBI had said in its Financial Stability Report.

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.