Foreign investors pull ₹10,000 Cr from Indian market post-Budget

Foreign portfolio investors (FPIs) have withdrawn nearly ₹10,710 crore from the Indian stock market within 3 days following the Union Budget announcement. Which included increased taxes on derivatives trades and capital gains from equity investments. According to stock exchange data, FPIs sold equities worth ₹2,975 crore on July 23. ₹5,130 crore on July 24, and ₹2,605 crore on July 25. Meanwhile, domestic institutional investors purchased stocks worth approximately ₹6,900 crore since July 23.

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FPIs’ Pre-Budget Activity and Key Budget Announcements

Before the Budget, FPIs invested around ₹18,000 crore in equities from July 12 to 22, anticipating various reform measures. However, Finance Minister Nirmala Sitharaman’s Budget introduced substantial changes to capital gains tax, proposing a uniform long-term capital gains (LTCG) rate of 12.5% for all asset types, regardless of the investor’s residency status. This new rate applies equally to both residents and non-residents, impacting investment strategies and expectations.

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Impact of New Capital Gains Tax Rates on Non-Resident Investors

A report by Nishith Desai Associates notes that while the simplification of the capital gains tax regime is a positive development. With some rates reduced, non-resident investors will face higher LTCG tax rates across all asset types. For FPIs, the tax rate on long-term capital gains (LTCG) for listed securities has been increased from 10% to 12.5%. And the rate for short-term capital gains (STCG) has risen from 15% to 20%.

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Institutional Equity Flows: A Contrast Between FPIs and DIIs

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, highlighted that a key aspect of institutional. Equity flows into the Indian market is the unpredictable nature of FPI movements compared to the consistent growth of DII investments. While DIIs have been regular buyers throughout CY 24, FPIs have fluctuated between buying and selling.

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