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Below the Quote on FPI Progress in August Trend inputs - Manoj Purohit, Partner & Leader, Financial Services Tax, Tax & Regulatory Services, BDO India

FPI progress in August given the macro headwinds of the US Economy -  
The Federal Reserve ‘s announcement of July 31 on keeping the Fed rate unchanged will give partial relief as the window is kept open to make a cut in the coming months.  Though inflation seems under control at the moment, another pressing factor is the job market data which has not improved much as compared to last quarter. The impact could be seen on India, the rupee slipped to a record low. FPIs are following the cautious approach keeping in mind the concerns raised by the Fed Reserve in the United States and booming geopolitical tensions in the Middle East indicating early signs of recession.
Despite the above macro factors and the Budget 2024 proposals on capital gains tax which beefed up the capital market participants, the current week has shown a significant rise in the inflows by the foreign investors in the equity space in India. We may witness the impact of this wave to continue in the next few trading cycles as well.
 
Do you see recession fear and lower job growth impending US FED rate cut?
There are several aspects worth noting before one concludes on the entry of recession phase in the US economy. Currently, the rising unemployment rate, weakening manufacturing index and lowering of treasury yields cumulatively gives an alarming signal for the recession. However, the government have been optimistic in its Federal Policy statement earlier this week on the grounds of easing inflation and stagnant job market. One needs to wait and watch the impact of the unchanged Fed rate in the coming months on the inflation and the unemployment numbers.
 
How would this playout for flows into India?
The Indian market as well got the push basis the marco factors in the US. However, the FPI’s inflows were positive this week post the Budget reactions seen in the last week.
The spike in the capital gains tax , removal of indexation benefit were few factors which resulted in a higher tax burden now for such investors. Another factor was a hike in the STT rate for FnO trades which will impact liquidity and also make hedging costlier.
Some of the positive changes for the foreign investors were abolition of the angel tax which is now done away with, and tax reduction for foreign corporate tax rate from 40% to 35%. With much needed clarification on taxability of ETFs and retail funds in IFSC and finance companies, the government has shown its readiness to absorb the large chunk of forex in the Indian market to make it at par with the other global financial hubs.
Considering the larger picture, the offshore fraternity has got the message from the Budget proposals that India is the market to invest from long term perspective. The roadmap is now laid for India's future prospects that would further solidify India's footprint on the international platform.
The recent consultation paper floated by the SEBI on monitoring of investors from Land Bordering Countries will also keep investors from China and Hong Kong, who primarily invest as FPIs via Singapore and Mauritius vehicle structures, on alert.
All in all, the Union Budget has laid down the ground rules for making India a Vikshit Bharat by 2047. The reforms and agenda put forward are surely taking India on the path of a rising economic trajectory and a self-dependent nation.

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