FPIs Turn Cautious, Dump Indian Equities Over Rs 5,200 Crore In April So Far

Investors are worried about changes in the tax treaty between India and Mauritius, which will bring the investments made in the country via the island nation under stricter scrutiny

Foreign investors turned cautious about Indian equities and withdrew more than Rs 5,200 crore from the market in the month so far. At the same time, investors exhibited a change in attitude towards the Indian debt market and pulled out Rs 6,174 crore this month, as of April 19, 2024, official data from the depositories revealed.

The bearish sentiment from the investors was attributed to worries about changes in the tax treaty between India and Mauritius, which will bring the investments made in the country via the island nation under stricter scrutiny, reported PTI. 

The net outflow of funds in the Indian equities stood at Rs 5,254 crore in the period under review. Earlier, the investors poured in Rs 35,908 crore in March and Rs 1,539 crore in February. 

Commenting on the change in fund flows, Himanshu Srivastava, Associate Director - Manager Research, Morningstar Investment Research India, said, “The major trigger for FPI selling was the tweak in India's tax treaty with Mauritius, which would now impose higher scrutiny on investments made in India via the island nation. The two nations have reached a consensus on a protocol amending a double taxation avoidance agreement (DTAA). The protocol specifies that tax relief cannot be utilized for the indirect advantage of residents from another country.” The expert added that majority of the investors spending funds via Mauritius entities in the Indian markets belong from other countries. 

Elaborating on other concerns dampening the sentiment, V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said, “Additionally, hotter-than-expected US inflation and the consequent spike in bond yield (the 10-year rising above 4.6 per cent) led to big selling in the Indian market. Another major concern is the surcharged geopolitical situation in the Middle East with heightened tensions between Iran and Israel.”

The analysts noted that domestic institutional investors (DIIs) are currently enjoying high liquidity and retail and high net-worth individuals (HNIs) remain positive about the domestic market. This will help balance the foreign fund outflows with domestic money.