With the government having put on hold a contentious circular on taxation of indirect transfers of Indian assets, foreign investors are breathing easy. Foreign portfolio investors had resumed buying of Indian stocks on Tuesday for the first time in January and after 21 continuous sessions of selling— the decision to keep the circular in abeyance was announced late on Tuesday evening. In two sessions —Tuesday and Wednesday — they bought shares worth over $75 million. However, on Thursday they offloaded equities worth about $2 million, provisional data from BSE showed.
On December 21, the Central Board of Direct Taxes (CBDT) came out with a circular stating large foreign portfolio investors and offshore funds would be subject to tax on the sale of assets of a foreign firm with substantial assets in
India.
FPIs have sold shares worth just $500 million so far in January, following sales of $2.61billion in November and $1.25 billion in December. A series of events including the election of Donald Trump as President of the USA, the hike in Fed rates and India’s decision to demonetise high-value currency notes resulted in a heavy bout of profit taking towards the end of 2016. Foreign investors had sold stocks worth $4.6 billion in the last three months of the CY2016, the highest in the preceding eleven quarters.
A Morgan Stanley India equity strategy report published on January 3, said, “While the near-term growth numbers are likely to be weak, due to the impact of demonetisation, 2017 is likely to see a turn in the growth cycle, and therefore it is quite likely that growth styles will fare better than they have in recent months.”
Most other emerging markets have seen FPI inflows in January-end though overseas investors were net sellers in five months of CY16, they were net buyers worth of $3 billion during the year.
“Unless the Union Budget surprises positively with a tax induced fiscal stimulus, the market is likely to mirror the movement seen in 4Q16, with FIIs continuing to stay on the sidelines while locals provide buying support,” said a Deutsche Bank report published on January 9.
