Foreign investors have pulled out a net sum of Rs 4,193 crore from the Indian capital markets in September so far, but the trend is expected to reverse on the back of fiscal relief measures announced by the government, experts said.
The Centre on Friday slashed corporate tax rates by around 10 percentage points and said the enhanced tax surcharge will not to apply on capital gains arising from sale of any security including derivatives in the hands of FPIs.
"The measures will act as a catalyst for supporting the slowing investment rate, boost corporate earnings, improve aggregate demand as corporates pass on some of the benefits to consumers and attract FPI flows into India," said Vijay Chandok, MD and CEO, ICICI Securities.
According to latest depositories data, foreign portfolio investors (FPI) withdrew a net amount of Rs 5,577.99 crore from equities while infusing Rs 1,384.81 crore into the debt segment. This translates into a cumulative net outflow of Rs 4,193.18 crore between September 3-20.
Prior to this, FPIs 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).
"FPI outflows which have sustained after the budget are likely to reverse after the new big bang announcements by the Finance Minister. The fact that FPIs continued to sell even after the reversal of the surcharge imposed on FPIs, indicated that they were selling because of the slowdown and the poor prospects for corporate profitability.
"These concerns are no longer valid as the reforms can boost investment, growth and corporate profits. FPIs have to return," said V K Vijayakumar, chief investment strategist at Geojit Financial Services.
Stating the reasons for FPI outflows, Ajit Mishra, VP Research at Religare Broking, said "apart from the signs of economic slowdown, valuation discomfort kept uneasiness in FPI intact. However, the announcements from Finance Minister have the potential to revive their sentiments."
Going forward, "political stability will act as an added advantage for India among other high yield economies. Fiscal stimulus by way of tax rate cuts and removal of surcharge from capital gains on sale of shares should also help in attracting both foreign portfolio and direct investment," said Vinod Karki, Head - Strategy at ICICI Securities.