After remaining net sellers for the past two months, foreign investors infused a net Rs 7,714 crore into the domestic capital markets in September following a slew of economic reforms by the government. The Centre last week slashed corporate tax rate by around 10 percentage points and also clarified that the enhanced tax surcharge will not apply on capital gains arising from sale of any security, including derivatives, in the hands of foreign portfolio investors (FPIs).
Besides, the Securities and Exchange Board of India (Sebi) simplified KYC requirements for FPIs and granted them permission to carry out off-market transfer of securities. As per latest depositories data, FPIs poured in a net Rs 7,849.89 crore into equities and withdrew a net Rs 135.59 crore from the debt segment between September 3-27, translating into a cumulative net inflow of Rs 7,714.30 crore.
Prior to this, foreign investors had pulled out a net Rs 5,920.02 crore in August and Rs 2,985.88 crore in July from the domestic capital markets (both equity and debt). "The government has initiated many reforms to embrace the FPIs in the home country by way of abolishing additional surcharge on the capital gains to slashing the corporate tax rates to attract new foreign investment. "If everything kept constant, the corporate tax cut is itself a very strong factor that will lead to earnings upgrades and will bring valuations to an attractive level which will eventually lead to historic FPI buying again," said Foram Parekh, fundamental analyst at Indiabulls Ventures.
Reacting to Sebi's reforms, V K Vijayakumar, chief investment strategist at Geojit Financial Services, said, "The simplification of KYC requirements for FPIs, permission for off-market transfer of securities, simplification of registration process and the new broad classification of FPIs are welcome and desirable steps." However, FPI inflows into India will also be influenced by how the economy performs and how soon corporate earnings recover, Vijayakumar added. The US Fed's monetary stance and global liquidity are also crucial in determining FPI flows, he said. Besides, the cooling of the US-China trade war is also helping investors' sentiments, said Harsh Jain, COO and co-founder of Groww.