FPI withdrawals in April have totaled over Rs 5,200 crore due to changes in the tax treaty with Mauritius

FPI withdrawals in April have totaled over Rs 5,200 crore due to changes in the tax treaty with Mauritius

Foreign Portfolio Investors (FPIs) withdrew a net amount of Rs 5,254 crore from Indian stocks this month (through April 19), per data from the depositories.

Because they were concerned about changes to India's tax treaty with Mauritius, which would now impose more scrutiny on investments made here via the island country, foreign investors sold off domestic shares worth over Rs 5,200 crore in April.

This followed an astounding net investment of Rs 1,539 crore in February and Rs 35,098 crore in March, according to statistics from the depositories.

Foreign Portfolio Investors (FPIs) withdrew a net amount of Rs 5,254 crore from Indian stocks this month (through April 19), per data from the depositories.

A change in India's tax treaty with Mauritius, which would now place more scrutiny on investments made in India via the island country, was the main cause of FPI selling, according to Himanshu Srivastava, Associate Director, Manager Research, Morningstar Investment Research India.

The two countries have agreed upon a protocol that modifies a double taxation avoidance agreement (DTAA). According to the protocol, citizens of another nation cannot indirectly benefit from tax reduction. He went on to say that the majority of investors entering Indian markets via Mauritius corporations are really foreign nationals.

Furthermore, large selling occurred in the Indian market as a result of the US inflation that was higher than anticipated and the ensuing jump in bond yield (the 10-year climbing above 4.6%), according to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

He said, "The heightened geopolitical situation in the Middle East with increased tensions between Iran and Israel is another major concern."

Domestic money will mostly absorb FPI selling because domestic institutional investors (DIIs) are sitting on massive liquidity and because Indian retail and high net worth individual (HNI) investors are quite positive about the Indian market.

During the period under review, FPIs withdrew Rs 6,174 crore from the debt market in addition to stocks.

Foreign investors made investments of Rs 19,836 crore in January, Rs 22,419 crore in February, and Rs 13,602 crore in March prior to this. The impending addition of Indian government bonds to the JP Morgan Index was the primary driver of this influx.

In September of last year, JP Morgan Chase & Co. said that starting in June of 2024, it would include Indian government bonds into its benchmark emerging market index.

With the expected inflow of USD 20–40 billion in the next 18–24 months, this historic inclusion might be advantageous for India.

Regarding industry, FPIs saw significant sales in the IT sector due to subpar results in the fourth quarter of FY24. They also sold consumer durables and fast-moving consumer goods. They did, however, purchase electricity, communications, capital goods, cars, and banking services.

Thus far this year, the total inflows have been Rs 5,640 crore in the equity market and Rs 49,682 crore in the debt market.