FIIs pulling funds out of India at rapid rate
11 Jun 2012
Overseas entities investing in Indian markets through 'participatory notes', are estimated to have pulled out over Rs1 lakh crore (about $20 billion) in less than three months on fears of getting caught in the government's taxation net and its black money trail.
As a result, the quantum of money invested through P-notes has hit rock bottom at just about 10 per cent of total foreign institutional investment (FII) holdings – the figure used to be more than 50 per cent a few years ago, reports PTI citing Securities & Exchange Board of India data.
The participatory notes (P-notes) allow foreign HNIs (High Networth Individuals) and other rich investors to invest in India through already-registered FIIs, while saving on time and costs associated with direct registrations.
The flight of P-note investments began late in March after the government in its union budget proposed new taxation regime of general anti-avoidance rules (GAAR) and certain retrospective amendments for taxing offshore transactions.
While GAAR has been deferred by a year, the tax proposals for offshore transactions could apply to FIIs as well.
According to SEBI data, the total value of P-notes in Indian markets stood at about Rs1,30,012 crore (about $25 billion) at the end of April 2012, down from Rs1,83,151 crore at the end of February and Rs1,65,832 crore at March-end.