A number of steps announced by the Finance Minister Nirmala Sitharaman Friday (after market closing hours) to infuse confidence in the economy and markets are set to revive sentiments that turned negative on the back of domestic and global growth concerns, domestic slowdown, weakening demand for India Inc and the threat of escalation of tariff war between US and China.
Market experts feel that while the imposition of surcharge on foreign portfolio investors (FPIs) in the Budget announcement severely dented investor confidence, the government’s decision to rollback surcharge on capital gains on shares for both foreign and domestic investors may help revive investor sentiment.
It is important to note that between July and August, FPIs pulled out a net of Rs 24,524 crore from Indian equities and the benchmark Sensex at the BSE lost 3,436 points or 9.4 per cent between July 4 (the day before the Budget announcement) and August 22 (the day before the Finance Minister announced rollback of surcharge).
“Foreign investors will be relieved with this move. It might indeed take some time to bring back their confidence but this is a good start,” said Karun Marwah, head of offshore business, Motilal Oswal Financial Services.
Govt decision sends right signals to investors
Even as the imposition of surcharge on FPIs in the Budget severely dented investor confidence, the government’s decision to rollback surcharge on capital gains on shares for both foreign and domestic investors may help revive the investor sentiment, more by way of signalling than in terms of the calibrated actual impact. Between July and August, FPIs pulled out a net of Rs 24,524 crore from Indian equities and the benchmark Sensex at the BSE lost 9.4 per cent between July 4 and August 22.
“Removal of surcharge on FPI investments by Ministry of Finance and the amendments in the FPI regulations by Sebi is expected to boost the investor sentiments and is in line with CII recommendations for the equity markets,” said industry body CII in a statement.
The markets are expected to witness smart gains on Monday — on account of the surcharge rollback and decisions including the move to infuse upfront equity of Rs 70,000 crore into public sector banks to boost lending, payment of all pending GST refunds to micro, small and medium enterprises within 30 days and releasing delayed payments amounting to around Rs 60,000 crore from government and central public sector enterprises among others.
While these benefits are expected to infuse liquidity into the market, and thereby reduce pressure from several companies, some believe that the rollback of surcharge along with other measures will also send a signal in the market that the government is open to listen and make amends.
“This rollback on surcharge is encouraging. While this government is effectively admitting an oversight and making a quick amend, it is importantly sending a strong signal to all of us that that they are willing to listen and be flexible where justified. We should take heart from that,” Marwah added. Many analysts feel that the fact that the government is listening and willing to make changes is the biggest positive that the markets will take.
“The comprehensive measures — removing enhanced surcharge on FPIs and DIs, securing transmission of lower repo rates, addressing delayed payments and ensuring that bank officials are confident about lending — are strategically targeted towards raising investments. Creation of a shelf of infrastructure projects and announcement of a long-term financial institution have wide positive ramifications for the economy,” Uday Kotak, president designate, CII, said. He added that the industry is looking forward to more such announcements from the FM, as mentioned by her in her speech of August 23.
The CII statement said that the recognition of the fact that bank officials have turned risk averse and restoring their ability to take credit decisions is a key step. It added that the FM’s policy package covers financial sector, taxation, MSME, and automotive sector, which were being advocated by CII, and the industry body “expects that the economy will climb up in coming months”.