A ‘Phoren’ story

Foreign Portfolio Investors have a lot to be pleased about…

The Union Budget announced on Saturday will surely go down well with the foreign investors. Uncertainty and lack of opportunities were the biggest complaints of foreign investors. This budget has taken the right steps and made the right noises.

FPI and FDI distinction…

The distinction between Foreign Direct Investment and Foreign Portfolio Investment was created in 1991 with a valid reason. A lot has changed in the last 24 years and this policy of demarcation made little sense. The budget has done the right thing by removing the demarcation between the two. Now companies with a high FII holding need not fear about being removed from the MSCI. Removing this distinction will give the much needed room to FPIs to enhance their stake in India companies. So far, so good!

GAAR is put off by 2 years…

General Anti-Avoidance Rules (GAAR) have been postponed and also rationalized. That is exactly what the foreign investors wanted. Putting off by 2 years, at best, gives everyone time to understand and prepare themselves for the post-GAAR scenario. What needs to be noted is the clarification that GAAR, when applied, will be prospective and not retrospective. That really eliminates the uncertainty quotient for foreign portfolio investors (FPIs).

No, you will not be MATed…

MAT was another bone of contention. A series of income tax notices had been issued to foreign portfolio investors asking why they should not be subject to Minimum Alternate Tax (MAT). More so, since, foreign companies also pay MAT. It would have surely created an additional layer of bureaucracy that the foreign investors would have to go through. This budget sets that issue to rest. It has been announced that FPIs will not be subject to MAT on exchange related transactions on which STT has already been paid. That is one more reason for the FPIs to be pleased.

And then there is more…

FPIs are also pleased that the government will now be directly involved in equity limits monitoring. This will create a unified point for FPIs to interact with. Making SEBI the regulatory pivot of financial markets will also go down well with the FPIs. But the real cream for FPIs is the fact that the finance minister has not really tinkered with the fiscal deficit. A well controlled fiscal deficit and current account deficit is the shortest route to a stable currency and a stable external rating. FPIs would be extremely keen to ensure that a weak rupee does not snatch value and a strong rupee does not snatch away opportunities. The budget has managed to strike a delicate balance. Foreign investors have a lot to celebrate. ©

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