New Mauritius tax treaty makes it easier for money to flow in
Geoff Lewis, global market strategist
May 13, 2016 | Source: Economic Times
India's decision to amend its tax treaty with Mauritius removes the long-standing uncertainty, which will make it easier for investors to pour money into Indian equities said Geoff Lewis.
Will the removal of tax benefits hit sentiment?
The removal of the tax benefits has come at a time when the markets have been fairly quiet, calmed by the dovish US Federal Reserve and lessened worries about China. I don't think there will be a big negative impact because of the treaty. In fact, it removes the uncertainty that has been hanging over the Indian stock market for many years. It is not retrospective and only applies to future investments.
Flows into Indian markets?
If new investments will be liable to taxation going ahead, it could deter inflows in the short term. In major financial centres such as UK and US, double taxation agreements on investment incomes exist in most cases and they have not been a big barrier to cross border investments. So, I don't see why it should be a big barrier to investments in India. The country's fundamentals haven't changed. It can pose a slight problem in the short term, but it should not be a problem in the long term. Due to the removal of this uncertainty, it will be easier for most fund managers to invest in Indian equities
View on Indian markets after this amended tax treaty:
Broadly, India looks very attractive among the emerging markets. I do not expect major outflows. We need to see a pickup in Asian exports and further evidence of China's economy stabilising, which will result in a greater risk appetite for all emerging market equities, and India will capture a share of that money. India is a more domestically-driven story and it should continue to stack up fairly well. We also like India's bond market. In between, India may see ups and downs because of growth issues in the world economy.