Foreigners oversell Indian stocks by around 1 billion dollars in 2 days after budget

Since the government raised taxes on capital gains from derivatives transactions and stock investments in the annual budget, foreign investors have sold Indian shares worth around 1 billion dollars in 2 days.

Foreign portfolio investors (FPI) oversold shares worth 81 billion 60 million rupees (0.9 billion68 million dollars) on Tuesday and Wednesday, according to preliminary data from the National Stock Exchange.

These investors bought $2.2 billion in shares in the six sessions before Tuesday's budget announcement, hoping for a budget.

The amount of investment since the beginning of this year has risen to 5.1 billion dollars.

Ashish Gupta, chief investment officer of Axis Mutual Fund (Axis Mutual Fund), stated, “Even if tax increases on long-term profits are moderate, capital gains tax increases are clearly negative.”

It is uncertain whether the 12.5% long-term capital gains tax rate will be raised further, putting pressure on the market, he added.

“Over the long term, the growth story has not been damaged, and the company continues to grow, so we don't see a significant impact.

India's benchmark indices, Nifty 50 and Sensex, rose about 2% due to the pre-budget FPI buying offensive.

It had risen by about 3% between 7/11 and 7/18, but the increase narrowed due to a 1% drop due to the global cyber failure on 7/19.

After the budget, the index fell by around 1%. Sectors with high FPI ownership ratios (financial services, banks, private banks) each fell by around 3%.

However, domestic institutional investors did not lose their buying attitude and made a net investment of 0.5 billion 50 million dollars after the budget.

The impact of the tax reform was not limited to stocks, and the rupee fell to record lows on both the day of the budget announcement and Wednesday as sentiment worsened.

A senior Treasury official told Reuters that the current tax reform is intended to curb “excessive speculation” in the derivatives market and promote long-term investment.

“Shifting derivatives trading to spot trading and moving from short-term speculation to long-term investment is the purpose the government has in mind, and part of the tax reform is being carried out with this purpose in mind,” T.V. Somanasan said.

Apart from this, according to what India's market regulator announced on Wednesday, the number of intraday traders in the stock spot market surged 300% between fiscal 2019 and fiscal 2023, and 7 out of 10 people lost money.