CHENNAI: After a season of pulling out from the Indian stock markets, foreign portfolio investors (FPIs) are back to investing big time in India. Thus far in February, FPIs have pumped in close to Rs 9,500 crore into Indian capital markets. This is a remarkable development considering the fact that FPIs had pulled out as much as Rs 77,000 crore between October 2016 and January 2017. In January alone, foreign investors had withdrawn around Rs 5,100 crore. The last time FPIs had registered a positive inflow was in September 2016, at about Rs 20,000 crore.
During February 1-17, foreign depositors infused Rs 3,002 crore in equities and another Rs 6,559 crore in the debt segment, translating into a total inflow of Rs 9,561 crore.
On Friday, the demand from foreign investors for the HDFC Bank scrip was so high that it crossed the 74 per cent threshold for FPI investment, forcing the Reserve Bank of India to put restrictions on further stock purchase by these investors.
The banking regulator monitors the ceilings on foreign investments — foreign institutional investors, non-resident Indians, persons of Indian origin, foreign direct investment and global depository receipts – in Indian companies on a daily basis. For effective monitoring, it has fixed the cut-off point two percentage points below the actual ceiling. Once the net purchases reach the cut-off point, the central bank steps in to say the purchase of any more equity shares of the respective company can’t be done without its approval.
The new-found enthusiasm among foreign investors follows the central government’s clarification on taxation on capital gains tax as well as indirect transfers, say experts.
Finance Minister Arun Jaitley had in his Budget speech proposed that category I and II FPIs would be exempt from taxation on indirect transfers. Category I means low-risk FPIs, which include the government and entities such as foreign central banks, sovereign wealth funds, multilateral organizations, etc. Category II are moderate-risk FPIs, which would include regulated entities such as banks, pension funds, insurance companies, mutual funds, investment trusts, asset management companies, University-related endowments (already registered with the Securities and Exchange Board of India), etc.