Foreign portfolio investors (FPIs) pulled out nearly $1.27 billion (around Rs 10,710 crore) from the Indian stock market in the three days following the budget announcement.
The recent budget announcement in India has led to a significant withdrawal of funds by foreign portfolio investors (FPIs) from the stock market. As par the stock exchange data, FPIs sold equities worth INR 2,975 crore on 23rd July’ 2024 when the Budget was announced, around INR 5,130 crore on 24th July’20 24. They withdrew INR 2,605 crore on 25th July’2024.
This exodus can be attributed to several key budgetary decisions that have negatively impacted investor sentiment:
Increased Taxes on Derivatives Trading: The government’s decision to raise taxes on derivatives trades has made these instruments less attractive for FPIs, prompting them to reduce their exposure to the Indian market.
Higher Capital Gains Tax on Equity Investments: The budget also introduced a higher capital gains tax on equity investments, further dampening investor confidence and leading to the withdrawal of funds.
Concerns About Fiscal Deficit: Some analysts have expressed apprehensions about the government’s ability to manage the fiscal deficit, which could potentially lead to higher inflation and interest rates, making India a less appealing investment destination.
Overall, these budgetary measures have created a sense of uncertainty and caution among foreign investors, resulting in a substantial outflow of funds from the Indian stock market.
It is important to note that this is a complex issue with multiple contributing factors. While the budget has certainly played a significant role in the FPI withdrawal, other global economic factors may also be influencing investor behavior.