Investors lose money as FIIs turn negative on India

The withdrawal of foreign institutional investors (FIIs) from the Indian markets has cast a shadow on the markets. The investors have lost a large amount of money over the last few trading sessions.

The FIIs have pulled out a net of Rs 5,971 crore from the Indian markets since the announcement of Budget on July 5, 2019, as the government decided to levy a surcharge over the tax imposed on the 'super-rich'. Since the Budget day, the FIIs have bought shares worth Rs 43,415 crore in the Indian markets while selling worth Rs 49,426 crore.

The wealth of the investors has come down by Rs 8.19 lakh crore (5.3%) in just 11 trading sessions.

Many analysts expect the markets to touch 52-week low by Diwali, as sell-off is expected to continue. The sentiment in the markets has also been on its lowest since July 2018, according to data available with BSE. The advances to declines ratio at BSE, till Friday, stood at paltry 0.83:1. In June 2018, the number stood at 0.81:1.

FIIs, which have been significant drivers of the growth in the equity markets, are pulling out of Indian markets, as they are unhappy with the government imposing the tax on the super-rich.

The budget raised the surcharge on tax paid by the super-rich. Prior to the budget, a surcharge of 15% on a tax of 30% was levied on those earning more than Rs 1 crore. After the budget, which was passed on Thursday, the surcharge has gone up to 25% for those with taxable income between Rs 2 crore and Rs 5 crore and to 37% for those earning more than Rs 5 crore. This makes the effective tax rate for  the  two groups 39% and 42.74%, respectively. Many of the FPIs will be hit by the hike in surcharge, as they invest as non-corporate entities, which are classified as regular individuals for taxation purposes.

Market estimates pitch the number of FPIs that would be hit by this move is 40%, which would lead to a collection of about Rs 500 crore for the government annually. The foreign investors are the single largest investment group in the Indian market, constituting about 30% of the equity market.

"The amount that will be generated for the government is very less. But it has sent a very negative sentiment in the markets," an analyst said.

DH spoke to four different FIIs, all of whom gave a negative rating on India's equity market. "The economy is facing a slowdown and the government isn't ready to acknowledge that. The earnings are also muted. Over and above that, the government has come up with this surcharge. How is it possible to make money in such a situation," an FII, wishing not to be named said.

Many investors, disillusioned with the government have started to take jibes at the Prime Minister Narendra Modi-led government.

"To put a stop to this market fall the government should immediately impose a restriction on FII selling; confiscate their shares and distribute it amongst the poor here???? (sic)," tweeted ace investor Basant Maheshwari.

Yet another star equity investor with over Rs 1,000 crore worth of Assets Under Management (AUM) Porinju Veliyath in a letter to his investors blamed provisions in the budget for poor market performance, thereby impacting his portfolio as well.