FPI flows stay muted post tax rate cuts

‘IMF, ADB cutting growth forecast, trade war, Trump impeachment inquiry weigh on global investors’

The corporate tax rate cuts announced by the government last month has had only a marginal effect on foreign portfolio investors (FPIs) who have been net sellers in most trading sessions since the reduction in the levy was announced.

Data show that in the 10 trading sessions since the rate cut, FPIs have sold shares on eight occasions though they have been net buyers at a little under ₹900 crore primarily due to significant buying on two occasions.

As per data from the National Securities Depository Limited (NSDL), FPIs were net buyers at a whopping ₹2,856.51 crore on September 23 — the first trading session post the tax rate cuts announced by Finance Minister Nirmala Sitharaman.

Thereafter, overseas investors sold shares with a cumulative value of almost ₹920 crore in the next two sessions before again buying shares worth ₹3,164 crore on September 26.

Since then, they have been net sellers in the six consecutive trading sessions having sold shares worth more than ₹4,200 crore.

Market participants believe the tax rate cut would only have a minimal effect on FPI flows in Indian equities as larger global concerns continue to persist making investors cautious about making fresh allocations in most emerging markets, including India.

Too many overhangs

“There are too many overhangs in equity markets globally and India is no exception,” said the institutional sales head of a domestic brokerage. “We have seen world bodies like IMF and ADB cutting growth forecasts, trade war between the U.S. and China escalating at regular intervals and, most recently, impeachment inquiry of Donald Trump.

“These things make global investors cautious, which is being reflected in the FPI flows even though the government did a good job by cutting corporate tax rates,” he added.

Incidentally, the recent FPI activity, though lacklustre in inflows, was still better than the trend witnessed after the government rolled back the tax surcharge introduced in the Union Budget. FPIs were net sellers at nearly ₹7,000 crore between August 23 — when the roll-back was announced — and September 23 when tax rate cuts were announced.

Meanwhile, domestic institutional investors (DIIs) have been buying shares in huge quantities with the net buying in the last 10 trading sessions pegged at nearly ₹5,200 crore.

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