Foreign portfolio investors remained net buyers for the fifth consecutive month in 2019 after pumping in Rs 2,596 crore in the equity market in June, as per the National Securities Depository Ltd data.
However, the inflows have steadily declined in the last four months since March 2019. The overseas investment was the lowest in June since January where FPIs turned net sellers and pulled out Rs 4,262 crore from the equity market.
According to NSDL data, total overseas investment in June 2019 stood at Rs 13,111 crore, including Rs 8,319 crore in debt and Rs 2,196 crore in hybrid securities.
In comparison, the Indian equity market remained largely volatile during June after touching all-time high levels following NDA's monumental win in the 2019 Lok Sabha elections.
In the June series, Indian equity benchmark Nifty50 tanked 1.1 percent, while Sensex dropped 0.8 percent.
The insurance sector raked in the most from overseas investors, garnering Rs 3,110 crore, of which, Rs 2,589 crore came in the last 15 days of June. Foreign investors have remained net buyers in the insurance sector for the seventh consecutive month.
Capital goods sector received the second-highest foreign funds, amassing Rs 1,831 crore during the June series. Other sectors that witnessed foreign inflow were NBFCs, automobiles & auto components, electric and other utilities and coal.
Meanwhile, software & services saw the biggest decline as FPIs sold equity worth Rs 2,077 crore in the sector. The sector has remained seen outflows for three consecutive months having witnessed the highest foreign fund outflow last month.
Pharmaceuticals & biotechnology, Banks, Construction material were other sectors that saw major FPI outflows.
Outlook moving forward
The foreign investors have been net sellers so far in the month having retreated Rs 4,776.96 crore, as on July 11, 2019.
A further decline in FPI inflows is likely after Finance Minister Nirmala Sitharaman, in her maiden Budget speech on July 5, hiked surcharge on tax paid by the super-rich.
Earlier, a surcharge of 15 percent was levied on a tax of 30 percent for those earning more than Rs 1 crore.
Now, Sitharaman has proposed to increase the surcharge to 25 percent for those with taxable income from Rs 2-5 crore and to 37 percent for those earning more than Rs 5 crore. Hence, the taxable income for the two classes will be 39 percent and 42.74 percent, respectively.
This will majorly impact overseas investment as about 40 percent of the FPIs will fall under the higher tax bracket as they invest in Indian markets as a non-corporate entity such as trust or association of persons (AOPs), which under the Income Tax law are classified as an individual for the purpose of taxation.
Nonetheless, the announcement has not rendered into actual selling from FPIs as they remained net buyers in the next three sessions post-budget, before turning into net sellers on July 11.