MUMBAI: Investors in Indian equity funds are keeping faith, unfazed by a planned tax on stock holdings, a bank fraud scandal and turmoil in global markets. Equity funds took in 163 billion rupees ($2.5 billion) in February, after pulling 154 billion rupees in January.
Investors held their nerve even after the government’s decision on Feb. 1 to impose a tax on equity gains and dividends from stock funds, a move that coincided with the selloff in markets from the U.S. to Japan. The liquidity has provided a buffer against outflows sparked by the risk-off mood: mutual funds bought $2 billion of shares last month, countering sales of $1.9 billion by their global peers.
“Going by the way things are, 2018 looks to be a bumpy ride and equities will need this support,” said Andrew Holland, chief executive officer at Avendus Capital Ltd. in Mumbai.
A widening probe into the $2 billion fraud that engulfed state-run lenders and worries over a global trade war sparked by U.S. President Donald Trump’s threat to impose tariffs dragged Indian stocks to a three-month low this week. Continued support from local funds will lend markets a cushion, Holland said. There was concern that a move to end the tax break on equities would affect flows from retail investors, who’ve flocked to mutual funds since Prime Minister Narendra Modi took office in 2014. The influx of cash has been aided by policy changes, including the currency clampdown in 2016, which hurt returns from property and gold, the traditional favorites.
