The reports of possible rollback surcharges imposed on foreign investors in the budget seemed to have cheered them. In the last 29 sessions, they were able to turn net buyers in the market.
Even the finance minister gave assurance that the government would take necessary steps in order to revive sentiment and get the economy back on track by mulling measures for NBFC. This seemed to have boosted the sentiment at the FII desks.
According to the provisional data available on National Stock Exchange, FIIs net bought Rs 203.73 crore from the secondary market on August 9.
In the last 28 sessions from July 2, they were able to sell more than Rs 24,900 crore worth of shares before the net buying on August 9.
Sensex corrected 4.6 percent but Nifty incurred a loss of 5.8 percent since July. The major selling was seen in border markets as BSE midcap index reduced to 7.8 percent and small-cap index shed 10.8 percent amid a slowdown, lower than expected June quarter earnings, global trade tensions, etc.
Other than that, another reason was a proposal to raise the tax surcharge to 25 percent, up from 15 percent on the super-rich individuals, people who earn between Rs 2 crore and Rs 5 crore. This also includes people who earn more than Rs 5 crore. It is known to have proposed a surcharge of 37 percent, up from 15 percent. This increased tax policy was also levied on foreign investors who are registered as trusts in the country.
Nirmala Sitharaman, Finance Minister during a discussion on the Finance Bill in the parliament on July 18 said:
“FPIs could consider the option of structuring themselves as companies rather than trusts to avoid paying the increased surcharge.”
A few days earlier, the FPIs conveyed to the ministry that it is going to be difficult to convert trusts into companies. The FPIs had thus sought a rollback of surcharges as a positive signal from the government.
According to the finance ministry, the collection through super-rich cess on FPIs will not amount to even 1 percent of the total estimated mobilization through this cess. Gaurav Garg, Head of Research at CapitalVia Global Research said that the ministry should think of barring them from it.
The rally in the last two sessions ending on August 9 showed the urgent need for reconsideration of taxation norms for FPIs.