Foreign Portfolio Investors (FPIs) continued to keep their buying interest in Indian equities in July despite the recent Budget induced speed breaker of hike in capital gains tax on listed equities as well as an increase in Securities Transactions Tax (STT) on F&O trades.
So far this month (up to July 26), FPIs have net invested in Indian equities ₹33,688 crore, higher than June 2024 net inflows of ₹26,565 crore, data with depositories showed.
In May 2024, FPIs net sold ₹25,586 crore on poll jitters ( results were out on June 2). In April 2024, the FPIs had net sold over ₹8,700 crore on rising U.S. bond yields and concerns over a tweak in double taxation avoidance treaty with Mauritius.
Expecting a slew of reform measures in Union Budget, FPIs had bought equities worth about ₹18,000 crore between July 12 and 22.
However, post the Budget announcement on July 23, FPIs had pulled out nearly ₹8,100 crore in four trading sessions after the government this past week hiked capital gains tax on listed equities as well as STT in F&O.
On Friday, aided by all round buying from both FPIs and DIIs, Nifty was up over 400 points, touching new life time high. Both Nifty and Sensex gained for the eighth straight week, longest winning streak in seven years.
In the current calendar year, FPIs have till July 26 pumped in ₹36,889 crore in equities and as much as ₹ 87,848 crore in debt markets.
Upward GDP growth
FPIs buying interest in July was sustained by expectation of continued policy reforms, sustained economic growth and a better-than-expected earnings season. Upward GDP growth revision for India by IMF and ADB also bolstered sentiments and buying interest.
Market experts see both the equity as well as debt markets in India to be favourably placed to attract more flows in remaining months of the current calendar year.
The much anticipated US Fed rate cut in September 2024 or even before that could bolster equity inflows into India from India-dedicated funds and global emerging market funds, they said.
Inclusion of India in global govt bond indices
V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said that a significant trend in the FPI and DII investment in equity is that during the last 30 months, each time FPIs turned sustained sellers DIIs were sustained buyers. Consequently, in this bull market the FPIs lost this tug-of-war since recently they have been buying the same shares at higher prices which they sold earlier at lower prices, he added.
In July 2024, FPIs pumped in ₹19,223 crore in Indian debt market, higher than net inflows of ₹14,955 crore in June 2024, depositories data showed.
Given the recent inclusion of India in global government bond indices, more FPI inflows are anticipated in the coming months, experts said.
Some FPIs are seeing the increase in capital gains tax in the recent budget as a negative even though the extent of increase is moderate. Non resident Indians including FPIs who take treaty benefits are unlikely to be affected by the additional tax burden, say tax experts.