As tax concerns along with the rate hike in the US forced the foreign portfolio investors (FPIs) to sell their equity holdings in India, thereby leading to a decline in the stock markets, the domestic institutional investors have provided the much needed support pumping in over Rs 5,500 crore over the last five trading sessions.
Over the last five trading sessions when the FPIs precipitated their selling on account of tax woes and sold equities worth Rs 4,954 crore from Indian markets, the DIIs invested a net of Rs 5,560 crore to provide the support. Experts say that the strong support from DIIs also restricted the fall in the premier indices over the last five days as the Sensex lost around 500 points between December 21 and 26.
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Tuesday saw a sharp rally of 406 points in the Sensex as DIIs infused a net of Rs 1,502 crore. The FPIs emerged as net sellers on Tuesday as they sold equity holdings worth Rs 712 crore.
“The FPI outflow has been there for sometime as they have readjusted their emerging market allocation after rate hike in the US. Among DIIs, mutual funds have been a big supporter as they continue to receive strong inflow from domestic investors, and thereby invest in the market,” said A Balasubramanian, CEO, Birla Sunlife Mutual Fund.
However, another market expert who did not wish to be named said that the two tax concerns in a week’s time has raised apprehensions in the minds of the FPIs and that has resulted in the surge in outflows.
The FPI outflow gained momentum following a CBDT circular last Wednesday that ruled against providing any relief to FPIs and off-shore funds from tax liability arising out of sale of assets of a foreign company that has substantial assets (50 per cent or more) i.e shares of Indian companies held by the fund constitute more than 50 per cent of its total assets.
The concerns grew further after Prime Minister Narendra Modi on Saturday said that entities and individuals who profit from financial markets need to “make a fair contribution to nation-building through taxes” as their tax contributions continue to be low. He said it’s time to “re-think” the contribution of market participants to the exchequer.
However, on Sunday the finance minister Arun Jaitley clarified that the government has no plans to impose long-term capital gains tax. Experts say, that the finance minister’s clarification restored some confidence back into the market.