India is an attractive emerging market destination for foreign portfolio investors
- 67% respondents see India as preferred emerging markets destination
- 73% of investors prefer direct access to the Indian market over P-notes
- 63% of investors believe that capital gains tax in India are satisfactory
- 55% % of the investors wish that the tax returns should be simpler
- Investors prefer to invest directly as against investing through P-notes
Investors’ displayed a preference for engaging directly with the Indian market rather than through overseas derivative instruments (ODIs), also commonly referred to as P-notes. Among the respondents, with definitive answers, 73% indicated that they would prefer direct access to the Indian market over ODIs.
- Investors are happy with the regulator’s responsiveness and India’s trade and settlement process
Approximately two out of three respondents rated the regulator’s responsiveness and India’s current trade and settlement process as either good or great. India follows a T+2 rolling settlement cycle for non-government securities and T+1 for government securities.
- Investors feel cost of trading is moderate but it can be decreased further
About 55% of the respondents were found to believe that the cost of trading in India is either moderate or low as compared to that in other emerging markets, whereas 45% indicated that the cost of trading in India is high. In India, the cost of trading includes several levies like brokerage, service tax, stamp duty, STT, SEBI turnover fees, exchange transaction fees and custody fees. Though these costs might seem small on first glance, they can have a major impact on investment portfolios, which churn frequently. These costs, coupled with high tax, administrative and compliance costs and hedging costs, result in the cost moving upwards.
- Investors believe tax rates on capital gains are satisfactory
Investors are satisfied with the tax currently levied on capital gains. Around two out of three respondents felt that tax rates on capital gains were moderate or low. This makes overall tax rates in India attractive to foreign investors. About 57% believed that the government was making significant efforts to improve the country’s tax regime.
- Clarity required on GAAR and Offshore transfer provisions:
Investors were concerned about the impact of GAAR on the Indian tax law. Around 78% of the tax managers and 42% of the portfolio managers were concerned about the impact of GAAR on the Indian tax law. These results suggest that the Government should provide further clarity with respect to GAAR provisions. Also, there is a need to rationalise offshore transfer provisions, especially for India-focused funds, as these funds are at a tax disadvantage compared to global funds.
Nandini ChatterjeeExecutive Director Corporate CommunicationsIndianandini.firstname.lastname@example.org+91 124 462 0756