Foreign investors have sold domestic equities worth more than Rs 5,200 crore so far in April due to concerns over changes in India’s tax treaty with Mauritius. Mauritius will now scrutinize more the investments made here through it. Data shows that before this, a staggering net investment of Rs 35,098 crore had come in March and Rs 1,539 crore in February.
Foreign investors i.e. FPI made a net withdrawal of Rs 5,254 crore in Indian shares till April 19 this month. Apart from shares, foreign investors withdrew Rs 6,174 crore from the bond market during this period. Earlier, foreign investors had invested Rs 13,602 crore in March, Rs 22,419 crore in February and Rs 19,836 crore in January. This flow was driven by the upcoming inclusion of Indian government bonds in the JP Morgan index.
Himanshu Srivastava, assistant director (research manager), Morningstar Investment Research India, said the main reason for FPI withdrawal was the change in India’s tax treaty with Mauritius, which will now bring greater scrutiny on investments made in India through it. He said that both the countries have reached a consensus on a protocol to amend the Double Taxation Avoidance Agreement (DTAA). The protocol specifies that tax relief cannot be used for the indirect benefit of residents of another country.
In fact, most of the investors investing in Indian markets through Mauritian entities are from other countries. Overall, so far this year the total investment in equity has been Rs 5,640 crore and in the bond market i.e. debt market has been Rs 49,682 crore.
