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Alternative Market Briefing

Tax concerns see hedge funds fleeing India

Tuesday, May 29, 2012

From Precy Dumlao, Opalesque Asia – Hedge funds and several foreign institutional investors (FIIs) have packed up their bags and left India on concerns over the proposed tax rules that India plans to implement that could impact on their investments.

According to a report by Asian Investor, these short term investors that bought exposures to Indian securities using participatory notes or P-notes, have voiced concerns over the proposed general anti-avoidance rules (Gaar) that Indian regulator, Securities and Exchange Board of India (Sebi) plan to implement.

Under the proposed Gaar, a 15% capital tax gains will be imposed on investment gained within a 12-month period. This new rule does not sit well with hedge funds and FIIs. Investors believe that the Indian government will use Gaar as a leverage to clamp down on P-notes.

A separate report by Reuters earlier this week also pointed to the loss of confidence amongst hedge fund managers and foreign investors towards the slowing growth in India and the unstable monetary policies which resulted in outflow of money from India towards other emerging markets in Southeast Asia.

Compounding India’s problems are corruption scandals and high inflation which saw its economic growth at a three-year low while the fisca......................

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