FPIs Turn Cautious Towards Indian Equities, Debt Market, On Concerns About India-Mauritius Tax Treaty

Analysts noted that the increase in commodity prices, and surging retail inflation in the US impacted any hopes of a rate cut by the US Federal Reserve

Prior to the bearish sentiment, the Indian equity market witnessed an influx of Rs 35,098 crore in March and Rs 1,539 crore in February. 

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Foreign portfolio investors continued to remain cautious about Indian equities and withdrew Rs 6,304 crore from the sector in April so far. At the same time, the investors pulled out Rs 10,640 crore from the Indian debt market in the month till April 26, official data from the depositories revealed. 

The outflow from equities followed concerns regarding the revision in India’s tax treaty with Mauritius and continued increase in the US bond yields, reported PTI. Prior to the bearish sentiment, the Indian equity market witnessed an influx of Rs 35,098 crore in March and Rs 1,539 crore in February. 

Commenting on the outflow, V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said, “The trigger for this renewed FPI selling, in both equity and debt, is sustained rise in US bond yields. The 10-year bond yield now stands at around 4.7 per cent, which is hugely attractive for foreign investors.”

Himanshu Srivastava, Associate Director - Manager Research, Morningstar Investment Research India, added, “While the tweak in India's tax treaty with Mauritius on investments made in India via the island nation continues to bother foreign investors, weak cues from the global markets with uncertain macro and interest rate outlook didn't augur well for emerging market equities.”

Further, the increase in commodity prices, and surging retail inflation in the US impacted any hopes of a rate cut by the US Fed, Srivastava noted. “This would have possibly prompted foreign investors to adopt a wait and watch approach,” he said.

Before April, the investors remained bullish towards the Indian debt market and poured in Rs 13,602 crore in March, Rs 22,419 crore in February, and Rs 19,836 crore in January. This influx was attributed to the inclusion of the Indian government bonds in the JP Morgan Index, scheduled for the year.