An industry grouping of bulge-bracket foreign investors, with BlackRock, Citi, and Goldman Sachs as members, has approached North Block seeking several market reforms, including the abolition of capital gains tax, easier debt investment rules and greater participation in offshore currency markets. The move by the Asia Securities Industry & Financial Markets Association (Asifma) comes at a time when India’s appeal as a relative outperformer is on the wane, with foreign portfolio investors (FPI) net selling Rs 1.2 lakh crore of stocks and bonds in 2020 so far.
The 10-page Asifma letter dated June 4 said these reforms were important for India to continue attracting dollar inflows. People who worked on the representation told ET that emerging markets such as India were losing favour among foreign funds and undertaking the reforms would help boost sentiment. “We believe that addressing the below issues (suggestions) will further (improve) ease of doing business for international investors, smoothen the investment channels into India and reduce the investment frictions more important than ever in light of challenges we all face in the wake of Covid-19,” the letter said.
India is the only major financial market that levies both transactional tax and capital gains tax on profits. “Some Indian stocks yielded superior returns compared to their global peers. However, it is no longer the case,” said a leading FPI broker. “In such a scenario, cutting capital gains tax will increase the in-hand returns the foreign funds get.” Market participants say several developing markets are currently considering reforms to draw global institutional investors.
“We are expecting some pro-market announcements in Brazil and South Africa… More countries are expected to do the same since a bulk of global investors are in a risk-off mode currently,” said a Singapore-based FPI. Asifma has also sought simplification of rules for FPI investments in Indian fixed income instruments, including corporate and government bonds.