My news Analysis of FPI

FPI (FOREIGN PORTFOLIO INVESTMENT)

Definition : Foreign portfolio investment (FPI) consists of securities and other financial assets held by investors in another country. It does not provide the investor with direct ownership of a company's assets and is relatively liquid depending on the volatility of the market.

In simple words, we can say that amount invested in shares, debentures, bonds, preference shares, derivatives, options, etc of other country. For example citizen of America wants to invest in shares of Reliance housing Finance Limited then he can invest via FPI. FPI is registered person with SEBI who can invest in securities of Indian Companies on behalf of Non Residents.

WORKING OF FPIS

Now lets consider how it works  foreigners or foreign would create trusts or Association of persons or Body of individual and it would invest money in Indian Stock Markets on behalf of foreigners.

 LATEST AMENDMENTS

 Recently government has applied surcharge on income more than Rs.2 crores at the rate of 25% and 37% on income more than Rs. 5 crores. Now this also applies on FPIs which has increase effective tax rate. Earlier there was not any clarifications. But it is clarified by finance minister.

Apart from FPIs, but there is one thing to notice that surcharge is increased on individual but not on corporates that means government wants to promote corporate structure.
Now either FPIs need to convert to corporate or revisit there strategies on whether to invest in India or not, as effective rate of tax is one of the factors to consider to whether to invest in India or not.
But recently it can be seen that there is outflow of FPIs in month of july this can be seen as one of the factors of fall in the markets.
Now consider few lines from economic times

"MUMBAI: Foreign investors have pulled out over $2 billion from the Indian stock market so far in July, the highest outflows seen by an emerging market during the month, as the concerns around higher taxation on FPIs and continued economic slowdown has forced them to reallocate to greener pastures for the near term. 

Countries such as Thailand, Indonesia, South Korea and Japan have seen inflows to the tune of $400 million to $1.7 billion, while data for China was not available. Brazil has seen the second highest outflows at $1.4 billion. 
The euphoria that existed some months ago on expectation of the Narendra Modi-led government returning to power for a second term has been replaced by the narrative of caution. Investors, who thought that a resounding win in national polls by the BJP-led coalition will be followed by steps to revive the slowing economy, were in for a disappointment after the budget. 

The proposals to increase tax on the super-rich, including foreign funds, soured sentiment. The proposal to tax share buybacks by listed companies and increase the minimum public shareholding requirements also drew flak. 

he risk-reward is not looking attractive for Indian markets. The market was expecting fiscal stimulus and reforms in the budget and since that did not materialize some FPIs may have been disappointed and sold,” said Sanjeev Prasad, co-head, Kotak Institutional Equities. "
So we conclude this here with my views .My view is that tax on FPIs should have been relaxed as economy is facing slowdown. It would have increased FPIs hence loss from slowdown could be minimized.