August 9, 2019  CNBC TV-18 Video Link…

Finance Minister (FM) Nirmala Sitharaman will meet market representatives including foreign institutional investors (FIIs) and foreign portfolio investors (FPIs) today. CNBC-TV18 spoke to Nandita Parker, managing partner at Karma Capital Management, about what the market expects from the government.

“The FII selling of the past month, USD 2 billion, is directly attributable to what was passed in the budget on July 5. In February 2018, when the long-term capital gains tax was passed in the previous budget, that year in 2018, FII net outflows from India was almost USD 5 billion. At that time there was no big shock of economic slowdown or anything like that,” Parker said.

“Going back in history, 2004 to 2016 were the golden years for FPI flows and these coincided with the time when majority of the FPIs were coming through the Mauritius route and in effect, they were not paying long-term or short-term capital gains taxes in India but were paying taxes in their home countries,” she added.

“The impact of taxing foreign portfolio managers and foreign residents is that you are cutting into their returns by a significant amount,” said Parker.

On the overseas inflows, Parker said, “India can get something like USD 25-35 billion in annual FPI flows. This year’s number year-to-date (YTD) is USD 8 billion. So we are clearly underperforming. I think it is time that the policymakers step back, look at the picture more holistically. In an economy where the Prime Minister Narendra Modi has come in and said he wants India to grow from the current gross domestic product (GDP) of USD 3 trillion to USD 5 trillion in five years, this is one important piece that needs to be addressed by policymakers, by FM Nirmala Sitharaman. I am very hopeful that today’s meeting will bring us to some kind of an understanding that a whole lot more needs to be done other than the surcharge that we need to think a little bit more forward, we need to understand the importance of equity markets for the economy.”

“Equity markets are a barometer of the economy and they are telling you that FPIs are unhappy with the current situation that they are not going to allocate unless some measures are brought in on the taxation front. India has been standing as an outlier on the global stage and it is time for us to set our house in order,” she said.