A very miraculous step taken by the finance ministry of India in last month pertaining to the cut in corporate tax was greeted as the biggest market friendly step in last few years but overseas funds remain indifferent to the government’s attempts to revive the economy. Out of the 10 trading sessions since September 20 when finance minister Nirmala Sitharaman announced the stimulus , foreign investors have dumped shares in seven. Market participants said worries about the downturn, uncertainly over India’s Financial sector plagued by bad assets and the impact of the tax cuts on the countries finances have overshadowed the early bursts of optimism over the stimulus.
“THERE IS NOT MUCH INTEREST IN INDIA FROM FOREIGN INVESTORS BECAUSE OF ECONOMIC SLOWDOWN. THE PROBLEMS WITH THE CO-OPERATIVE BANK DOES NOT REALLY HELP THE CONCERNS IN THE BANKING SECTOR” said Andrew Holland, CEO, Avendus Capital Alternate Strategies. Data showed foreign portfolio investors (FPIs) are net buyers worth 9,500 crore since September 20 but that is because of their buying of 11,000 crore on September 26. But for the exceptional single day inflow because of a string of block deals in ICICI Lombard General Insurance, analysts said data would have showed net sales. In October so far they have pulled 3,300 crore out of Indian equities after selling the tune of 6,300 crore worth of shares in September.
The crisis at one of the largest co- operative banks in India is the latest addition to unresolved problems of the banking system, already reeling under a pile of non-performing loans. Markets watchers said the corporate tax rate cut would boost earnings but they remain uncertain about it’s impact on the economy. “IT’S DIFFICULT TO JUSTIFY UPSIDE TO THE NIFTY BASED JUST ON THE FIRST ORDER EFFECTS OF THE TAX CUTS” said Sanjay Mookim , India equity strategist, Bank of America Merrill Lynch in a recent note. Sensex and Nifty rose almost 9% after the announcement of the corporate tax cut and while the index has come off it’s highs due to concerns around the health of the financial sector.
It is still up 4.4% from the date of the tax cut announcement. Concerns over impeachment probe against US President Donald Trump and US-China trade tensions have also impacted the market sentiments. Indian stock indices ended down 1.3% on Friday as the 25 bases points cut by RBI fell short of expectations. The central bank cut also it’s economic growth projection for this fiscal to 6.1% from 6.9%. India’s GDP growth slipped to a five year low 5% in the quarter ended June. Till then, optimists will rely on domestic institutional buying which have cushioned market downsides. After buying shares worth 11,079 crore in September they have pumped to 1,930 crore into stocks in October so far.
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