Modi Govt's Tax Surcharge on Foreign Portfolio Investments Triggers Exit of Investors, Experts Question Corrective Measures

Mumbai, August 2: With top finance ministry officials meeting with the senior bureaucrats in the prime minister’s office (PMO) in order to discuss foreign portfolio investment (FPI) surcharge - which has roiled the market - concerns among the market leaders are soaring who are questioning on Modi Government claims of roaring bear market when 500 companies at 52-week lows. Experts even opine that additional surcharge on 'individuals and trusts' are triggering FPIs exodus.

Considering the case of a bear market - a market in which share prices are falling and encourage selling - Nifty 500 index has fallen about 10 percent from its high in early June and correction of more than 20 percent might not bring the stability in the market which is utmost required. Stock Market in Free Fall Mode: Sensex Slides by Over 2,700 Pts Since July, Nifty at 5-Month Low

Expressing concerns on the current scenario of the falling trust in the market and companies losing their shares price, joint managing director at Motilal Oswal Financial Services Ltd - Raamdeo Agrawal - claimed, as quoted by Live Mint, "You don’t need to look at the index. If you have 500 companies at 52-week lows, and not even 5 companies at their highs, then there is no question this is a roaring bear market."

Sharing similar opinion, while narrating the major reasons for investors turning pessimistic, analyst Gautam Chhaochharia of UBS Securities India Pvt. Ltd said, "The sharp slowdown in auto sales, NBFC stress and recent disappointment with the budget has turned the narrative pessimistic amongst investors. There are structural undertones of a lack of quality jobs, implying the consumption resilience seen until early 2018 is likely unsustainable."

Claiming that that Union Budget 2019 was market-unfriendly and measures such as a tax on certain FPIs and the rich are worsening the situation, experts opine that the present ruling dispensation is displaying a lack of respect for the markets. They even claim that recent measures are demotivating and the government is not giving an ear to the voices in the market.

According to the data, through various sources, foreign portfolio investors (FPIs) have pulled out nearly USD 2 billion from the equity market in July. However, some data even shows that FPIs sold Rs 11,740 crore worth of equities in June, the highest outflow since October 2018.

Earlier in her maiden Budget speech, Finance Minister Nirmala Sitharaman proposed an additional surcharge on 'individuals and trusts' - earning more than Rs 2 crore and Rs 5 crore. Due to this announcement, an exodus of FPIs from the country was triggered.

(The above story first appeared on LatestLY on Aug 02, 2019 05:18 PM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).