Mumbai: Foreign fund outflow of over Rs 2,000 crore has been witnessed since the Budget proposal as the raised surcharge on the super-rich hit the FPIs and in turn the stock markets.
Despite the dovish comments by the Federal Reserve on Wednesday, believed to aid FII inflow in the emerging markets, analysts believe that the negativity over the surcharge will far out way the fresh possibility of a Fed rate cut. "The risk reward ratio does not justify for the FPI," Rusmik Oza, Head of Research, Kotak Securities.
"I am expecting FIIs to pull out money because the taxation part is more impactful than the dovish remark by the Fed," Oza added. The likely hood of FIIs to remain in a sell mode is also high as both the Central Board of Direct Taxation (CBDT) and Finance Minister Nirmala Sitharaman have hinted no change in stance on the higher surcharge levied on the super-rich.
Aiming to assuage the markets, which have bled heavily off-late owing to the surcharge, CBDT Chairman PC Mody earlier in the week said that the proposal was not intended towards the Foreign Portfolio Investors (FPI).
"The base rate was not changed, it was just the surcharge which was changed.. as a collateral damage if you can call it, it affected the FPIs of AIF category-III... There again the option is to go to the corporate structure. I don't see any kind of differential treatment," Mody said at a CII event.
Oza, however, said that "converting into corporate is not the solution for them". The surcharge is very negative "because 40-50 per cent of the FII's are non-corporate and for them the jump in capital gains is very substantial... unless they think of converting into a corporate entity".
"But most will rather think of moving out of India, because the long-term capital gains for these entity are going up from 12 per cent to 14 per cent and short-term capital gains from 17 to over 19 per cent", Oza added. (IANS)