Adjustments in India-Mauritius tax treaty, FPIs withdraw Rs 5,200 crore so far in April

The main reason for the sale of FPIs was the amendment of the Indian tax treaty with Mauritius

The main reason for the sale of FPIs was the amendment of the Indian tax treaty with Mauritius

FPIs have recorded net outflows of Rs 5,254 crore in Indian equities this month (till April 19), according to depository data.

Foreign investors have dumped domestic equities worth over Rs 5,200 crore so far in April over concerns over amendments to India’s tax treaty with Mauritius, which would now impose greater scrutiny on investments made here through the island.

This came after a staggering net investment of Rs 35,098 crore in March and Rs 1,539 crore in February, depository data showed.

According to custodian data, Foreign Portfolio Investors (FPIs) have recorded net outflows of Rs 5,254 crore in Indian equities this month (till April 19).

The main impetus for the sale of FPIs was the amendment of India’s tax treaty with Mauritius, which would now impose stricter scrutiny on investments made in India through the island, says Himanshu Srivastava, Associate Director, Manager Research, Morningstar Investment Research India .

The two countries have agreed on a protocol amending a double taxation agreement (DTAA). The protocol specifies that tax credits cannot be used for the indirect benefit of residents of another country. In fact, most of the investors investing in the Indian markets through Mauritius entities are from other countries, he added.

Moreover, higher-than-expected US inflation and the resulting spike in bond yields (the 10-year rise above 4.6 percent) led to heavy selling in the Indian market, said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Another major concern is the increased geopolitical situation in the Middle East, with increased tensions between Iran and Israel, he added.

Since domestic institutional investors (DIIs) depend on huge liquidity and India’s retail and high net worth individual investors (HNI) are very optimistic about the Indian market, FPI sales will be largely absorbed by domestic money.

Apart from equities, FPIs raised Rs 6,174 crore from the debt market during the period under review.

Previously, foreign investors invested Rs 13,602 crore in March, Rs 22,419 crore in February and Rs 19,836 crore in January. This inflow was driven by the upcoming inclusion of Indian government bonds in the JP Morgan Index.

JP Morgan Chase & Co. announced in September last year that it will add Indian government bonds to its emerging markets benchmark index from June 2024.

This historic drawdown is expected to benefit India by attracting around $20-40 billion over the next 18 to 24 months.

On the industry side, FPIs were big sellers in IT ahead of poor performance in Q4 FY24. They were also sellers in FMCG and consumer durables. However, they were buyers of cars, capital goods, telecoms, financial services and energy.

Overall, the total inflows for the year so far stood at Rs 5,640 crore in equity and Rs 49,682 crore in debt market.

(This story has not been edited by News18 staff and is published from a syndicated news agency feed – PTI)