Markets bounce back on buzz of govt examining tax concerns of FPIs

Since the Union Budget, the benchmark Nifty has lost nearly 8 per cent amid selling to the tune of Rs 12,000 crore by FPIs
The buzz of the finance ministry examining the tax concerns of foreign portfolio investors (FPIs) sparked a sharp rebound in the domestic equity market on Friday, even as most global bourses tumbled amid a fresh spike in tensions between the US and China. A 7 per cent decline in Brent crude prices on Thursday night helped ease some concerns on the macroeconomic front.

After dropping as much as 410 points in intra-day trade, the benchmark Sensex recouped all the losses to end 100 points higher at 37,118. The 50-share Nifty ended slightly below 11,000, a psychologically important level.

The rebound happened after media reports said the government was likely to put on hold a plan to raise the minimum public shareholding in listed companies to 35 per cent from 25 per cent. The government, the reports said, was also looking for ways to ease concerns of FPIs, which have pulled out of the Indian equity market after the Budget announcement of higher taxes for individuals and trusts earning more than Rs 2 crore a year.

“We may not notify this year the 35 per cent minimum shareholding norm as we have got some representation on the issue and we will look into it in detail and understand the viability of such a proposal,” a source, who is dealing with the matter, told Reuters.

Rattled by the escalation in the long-running trade dispute between the US and China, global equities tumbled, with most markets in Europe, China and Hong Kong declining close to 2 per cent. US President Donald Trump on Thursday announced a 10 per cent tariff on an additional $300 billion of Chinese imports from September, spooking the investors. He further said that high-level talks between the two sides in Shanghai had gone badly. China’s commerce ministry responded by vowing to retaliate with necessary counter measures. 

Since the Union Budget, the benchmark Nifty has lost nearly 8 per cent amid selling to the tune of Rs 12,000 crore by FPIs. On Friday, FPIs offloaded shares worth nearly Rs 2,900 crore, while domestic institutions provided buying support to the tune of Rs 2,800 crore. Indian markets have lost Rs 13.6 trillion in market capitalisation since July 5, when the new tax surcharge was announced by Finance Minister Nirmala Sitharaman. 

“In a gloomy market environment, the imposition of tax surcharge has affected about 40 per cent of FPIs and triggered a significant outflow in July, compared to inflows in June. In the near term, we expect the market to be range-bound, with a negative bias,” said Ravi Sundar Muthukrishnan, head of research, Elara Capital.

Andrew Holland, chief executive officer, Avendus Capital Public Markets Alternate Strategies, said: “If the pre-Budget tax regime is restored, you could see better flows to India.”

The benchmark indices have logged their fourth consecutive weekly fall — the longest losing streak since September 2018, when the IL&FS crisis came to light.

Market players say the FPI taxation is only one of the many headwinds faced by the domestic markets. “India’s GDP has been deteriorating over the past few quarters. Most key engines of GDP growth — private consumption, private capital expenditure, net exports and public infrastructure spending — are facing stiff challenges. Rural distress, the NBFC crisis, declining consumer confidence, and elevated unemployment levels suggest consumption is unlikely to pick up anytime soon. Challenging global growth environment is likely to persist, which is a negative for exports. In effect, the government’s infrastructure spending — railways, defence and other public infrastructure — is the only hope to spur economic growth in the medium term,” said Muthukrishnan.

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