Foreign investors have remained net buyers in the Indian capital markets this month so far, even as the equity segment saw robust outflows post the Budget. As per the latest depositories data, foreign portfolio investors (FPIs) withdrew a net sum of Rs 4,953.77 crore from equities during July 1-12, but poured in a net Rs 8,504.78 crore into the debt market, translating into a cumulative net investment of Rs 3,551.01 crore.
Overseas investors pulled out money from the equity markets for five of the six sessions following the Budget, which was presented on July 5.
According to experts, the proposal in the Union Budget to hike surcharge on income tax for wealthy individuals, including foreign funds which are structured as trusts and association of persons (AoPs), dented FPIs' enthusiasm for Indian equities and may lead to re-evaluation of their exposure to the domestic stock market.
FPIs have been net buyers for the past five consecutive months, infusing 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 (both equity and debt).
"During the Budget, the government announced various measures to boost foreign flows and FDI in Indian markets such as rationalising and simplifying the KYC form for FPIs, allowing FPI investments in debt securities issued by NBFCs and hiking statutory limit of foreign investments in some companies.
"While these were broadly viewed as positive steps, the proposal to hike surcharge on income tax for wealthy individuals, including foreign funds which are structured as trust and AoPs, didn't go down well with the markets," said Himanshu Srivastava, Senior Analyst Manager Research at Morningstar Investment.
Next few days would be crucial to understand how FPIs act in respect to this changed environment, he added.
V K Vijayakumar, chief investment strategist at Geojit Financial Services, said, "The major drag on Indian market now is the faltering GDP growth and tepid earnings growth. If macro indicators reflect an improving economy, FPI flows can be expected to continue. Otherwise FPIs would be less enthusiastic to pour more money into Indian markets."