Indian stock markets have been on a selling spree since Finance Minister Nirmala Sitharaman’s announcement on a higher surcharge on super-rich in her maiden budget on 5 July 2019. FIIs (foreign investors) have been withdrawing from India as the additional surcharge also applies to those Foreign Portfolio Investors who are registered as trusts in India. The FPIs have been net sellers since July after Sitharman announced the surcharge on individuals having an annual income of Rs 2 crore or more. So far in August, the net value of FPIs stands at Rs 9,172 crores, according to the NSDL data.
FPIs have demanded clarification from the finance minister with regard to tax implications, and the government is expected to announce some measures in favour of FPIs in a bid to resurrect the market sentiments which has been on a constant decline since the announcement. It is expected that 20-30% of the shareholding may be liquidated in the FII-owned stocks, according to a report by Target Investing. Three stocks in the derivative segment with heavy FII holding are aligned for a sell or short, the report says. The fundamentals of these stocks have been worrisome after the levy of a new surcharge as the PE ratio may get de-rated. These stocks can be under fundamental stress in the coming 2-3 quarters.
FIIs hold 56.4 per cent stake in Shriram Transport Finance, while domestic investors have 7.73 per cent holding in the company, making it vulnerable to FIIs liquidation, Target report says. Further, 83 per cent of the company’s assets under management or AUM is from financing the purchase of used commercial vehicles. The used commercial vehicle market is down for the past couple of quarters given that the new commercial vehicles are being sold at heavy discounts and the demand of total commercial vehicle is down.
Max Financial Services, the holding company of Max Life Insurance, is another risky stock in view of additional surcharge on FPIs as the FIIs hold 29.55 per cent in the company. The promoter pledge has increased from 80.36 per cent to 80.49 per cent in July 2019 as compared to June 2019. Next, Havells India is also a vulnerable stock as the FIIs own 26.95 per cent in the company engaged in the electrical business, the report said.