"Out of 15 trading sessions, foreign investors were net buyers in only two sessions. The sell off in equities continued due to a mix of factors including US Fed rate cut, US-China trade war and the post Budget tax hike on high income investors," said Harsh Jain, co-founder and COO of Groww.
The Centre on Friday announced a slew of measures to revive growth momentum, including rollback of enhanced super-rich tax on foreign and domestic equity investors imposed in the Budget.
Prior to the announcement of enhanced super-rich tax in the Union Budget for 2019-20 in July, FPIs were net buyers for five consecutive months.
FPIs had infused 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.
However, the position reversed in July, when FPIs turned net sellers to the tune of Rs 2,985.88 crore.
Now, with the withdrawal of the enhanced surcharge on FPIs, confidence in the market is likely to be restored, analysts said.
"One can now expect reversal of the FPI selling. The market is likely to look up from now on. However, sustained rally in the market will happen only when we have visibility on good earnings growth and reversal of the slowdown underway in the economy which requires more reforms.
"The Finance Minister has announced that she will come back with more reforms soon. So, there is hope," said V K Vijayakumar, chief investment strategist at Geojit Financial Services.