Foreign investors dumped shares worth Rs 178 crore in the first two weeks of May as worries over global economy and amended Indo-Mauritius tax treaty hurt sentiment, reversing the last two months' bullish trend.
In March-April, Foreign Portfolio Investors (FPIs) had pumped in a net Rs 29,558 crore into equity markets.
The data sourced from the depositories showed that FPI withdrew a net amount of Rs 178 crore from Indian equities till May 13.
However, FPIs have invested Rs 595 crore in the debt markets during the period under review.
Capital poured in by FPIs is often referred to as 'hot money' because of its unpredictability, although they continue to remain among the most important drivers of Indian stock markets.
The apprehension over tax on capital gains made through P-Notes (Mauritius) has negatively impacted the inflow. The short-term investments from FPIs may get hurt in the near-term, said Vinod Nair Head of Research at Geojit BNP Paribas Financial Services.
Besides, worries over global economy have impacted investor sentiment.
India will begin imposing capital gains tax on investments routed through Mauritius from April next under a revised tax treaty to curb evasion and round-tripping of funds - a move that may have a significant bearing on capital flows from the island nation.
So far this year, FPIs have invested Rs 12,733 crore in equities while withdrawing Rs 345 crore from the debt market, resulting in a net inflow of Rs 12,388 crore ($1.9 billion).