FPI surcharge makes markets see red; Sensex posts biggest fall in 9 months

The Indian markets fell the most in nine months with the benchmark Sensex dropping as much as 908 points in intra-day trade after a combination of domestic as well as global factors hit investor sentiment. 

The surcharge on foreign portfolio investors (FPIs), 20 per cent tax on buyback of securities, and proposal to increase the public float by 10 per cent disappointed investors. Meanwhile, most global equities fell sharply after the strong US job data cast doubts on whether the pace of interest rate cuts by the US Federal Reserve will keep pace with market expectations. 

The Sensex ended at 38 721, down 793 points, or 2.01 per cent, while the Nifty ended at 11,558, down 253 points, or 2.14 per cent. This was the biggest single-day fall since October 11, 2018, for the two indices, which are now back to levels seen before the election results on May 23. Today’s fall of 2.01 per cent was slightly below last year’s fall of 2.34 per cent a day after the Budget. India’s market capitalisation saw an erosion of Rs 3.4 trillion in Monday’s trade.

“The surcharge on taxation relating to FPIs could be a big negative if the government goes ahead with that move. There is some confusion about the increased surcharge on FPIs and the markets will take a call once the government clarifies on this,” said U R Bhat, director, Dalton Capital Advisors.

On Monday, FPIs pulled out Rs 402 crore from the domestic market, while their domestic counterparts provided buying support of Rs 321 crore. 

Jyoti Jaipuria, founder, Valentis Advisors, said, “Foreign investors do not pay this kind of taxes in other markets. Effectively, India has to give a post-tax return similar to other emerging markets for the flows to sustain.” Experts said investors were hoping for some stimulus from the Budget to shore up the economy. 

All sectoral indices of the BSE ended the session in the red, led by losses in the capital goods index.