Foreign investors have pulled out nearly ₹11,000 crore from Indian stocks over the past three trading days, following the Union Budget 2024, according to Trendlyne data. This selling spree has not heavily impacted the market, thanks to retail investors who are buying the stocks that foreign investors are selling.
Expert Believes
The budget increased long-term capital gains tax to 12.5% and short-term capital gains tax to 20%. Experts believe these changes have hurt foreign investor sentiment. The higher taxes also contributed to the rupee falling to record lows.
Tax Changes
Despite these tax changes, retail investors have continued to buy stocks, keeping the market stable. Domestic institutional investors (DIIs) have purchased ₹8,105 crore worth of stocks, balancing out the selling by foreign investors (FPIs). Before the budget announcement, FPIs had bought ₹18,409 crore in stocks over six sessions.
Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said that the Indian market’s ability to overcome various challenges, including the budget changes and global economic concerns, is notable. He pointed out that while large-cap stocks are fairly valued, mid- and small-cap stocks may be overpriced. He recommended that long-term investors consider buying quality large-cap stocks during market dips.
Although FPIs are selling off their investments, DIIs are buying stocks, which helps stabilize the market. The US Q2 GDP numbers, which were better than expected, also support hopes for a smooth landing for the US economy.
Investment in FPIs
In June, FPIs invested ₹26,565 crore in Indian stocks due to political stability and a market rebound. However, in May, they withdrew ₹25,586 crore due to election uncertainties, and in April, they pulled out over ₹8,700 crore because of concerns about changes in India’s tax treaty with Mauritius and rising US bond yields.
Retail investors have become a strong force in the Indian market, with over 9.5 crore investors holding nearly 10% of the market through direct investments and mutual funds. This robust participation has been a key factor in the recent strong performance of Indian stock indices.
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