The Union Budget for the fiscal year 2015-16 was presented; the key highlights of the

budget impacting the FPIs are as followsThe following Policy Proposals were made
1. Distinction between different types of foreign investments such as foreign portfolio
investment, foreign direct investment to be done away with , this means there would
be no distinction between them and all will come under one umbrella.
2. The current regulator of commodities market i.e. the Forward Markets Commission to
be merged with the capital market regulator i.e. Securities and Exchange Board of
India (SEBI) in order to strengthen the regulatory framework for commodity
transactions and thereby reduce speculation.
3. Foreign investment will permitted to invest in Alternate Investment Funds(AIF).
4. Goods and Service Tax (GST) to be implemented from April 2016 replacing various
types of taxes and duties levied by state governments. Implementation of GST would
result in developing a common Indian market and reducing the cascading effect on the
cost of goods and services.
5. Establishment of National Investment and Infrastructure Fund (NIIF) which would
raise money by debt issuances and make investments in equity of infrastructure
finance companies.
6. Launch of tax free infrastructure bonds for projects in the rail, road and irrigation
sectors.
Tax Proposals
1. Minimum Alternate Tax (MAT) provisions would not apply to capital gains of FPIs
except short-term capital gains which are not subject to securities transaction tax
(typically off-market transactions). The Impact of this proposal is that it gives
significant relief for FPIs as application of MAT provisions could have resulted in
capital gains being taxed at 18.5% instead of current tax exemption for specified longterm gains and 15% tax on short-term gains.
2. General Anti-Avoidance Rules (GAAR) have been deferred by 2 years i.e. upto 1
April 2017. Further, GAAR would be applied prospectively only in relation to
investments made from 1 April 2017. The Impact of enactment of GAAR could have
adverse implications for FPIs claiming exemption under various treaties. The
grandfathering provision could mean that even capital gains arising after 1 April 2017
in relation to investments made before 1 April 2017 will be protected from
applicability of GAAR.
3. Concessional tax rate of 5% on government securities and eligible corporate bonds
extended upto 30 June 2017. It could help to retain the attractiveness of Indian debt
over other countries.
4. Presence of fund manager in India would not result in creation of a Permanent
Establishment (PE) for the FPI provided the FPI as well as the fund manager satisfy
certain conditions concerning the shareholding pattern, place of control, investments

in an Indian entity, corpus of the fund, relationship between the FPI and the fund
manager, etc. This proposed eligibility conditions might disqualify several funds from
benefiting from the relaxation.
5. Tax exemption for transfer of American Depository Receipts (ADRs) / Global
Depository Receipts (GDRs) of Indian companies not listed in India has been
removed. This will create an uncertainty on tax treatment of gains arising to foreign
investors on sale of such ADRs / GDRs.
6. Merger of schemes of Mutual funds in India would not be regarded as a taxable
transfer in the hands of FPIs provided the merger is between two or more equity
oriented schemes or between two or more non-equity oriented schemes. This
amendment brings merger of mutual fund schemes at par with merger of Indian
companies in terms of tax neutrality in the hands of investors.
7. Service tax rate has been increased from 12.36% to 14%. The increase in service tax
rate would result in marginal increase in transaction costs as FPIs currently pay
service tax on brokerage fees.
Gold Monetisation Scheme
The Minister proposes to introduce a gold monetisation scheme, which will
replace both the present gold deposit and gold metal loan schemes. The current
gold deposit schemes have not proved popular as they have a high minimum
requirement. But the Gold monetisation scheme will have a much lower
minimum requirement and also offer a higher interest that those offered by the
current schemes, hence attracting investors who do not want to hold physical
gold.

Sovereign Gold Bond, as an alternative to purchasing metal gold scheme to be

developed, it will help mobilize the idle gold in the country and put it into
productive use. Banks and other agencies would also be able to monetise the
gold deposited

Gold monetisation scheme will allow the depositors of gold to earn interest in
their metal accounts and the jewellers to obtain loans in their metal account.
The bonds will carry a fixed rate of interest and also be redeemable in cash in
terms of the face value of the gold, at the time of redemption by the holder of
the bond. Banks/other dealers would also be able to monetize this gold. This
move would also help in containing trade deficit and current account deficit
(CAD) and also reduce demand for overseas gold.

Development of an Indian gold coin, which will carry the Ashok Chakra on its
face. The impact is that it will help reduce the demand for coins minted
outside India and also help to recycle the gold available in the country

Stocks to be purchased in the light of the budget announcement impacting their

sectors in a positive manner and the relative performance of this companies have been
good in the year and also new projects underline will help them grow more.
1. HDFC Bank and ICICI Bank These stocks can be bought because of the
following reasons which will lead to higher demand for the industry and the
performance of this banks in the current year seems to be growing Distinction between different types of foreign investments particularly foreign
portfolio investments and FDI are done away with.
Agricultural credit targets increased to Rs 8.5 tn vs Rs 8tn in FY15.
NBFCs having asset size of greater than Rs 5 bn will be allowed to make use
of SARFAESI Act, 2002
Repo rate cut announced by RBI by 25 basis points.
2. Infosys and TCS - These stocks can be bought because of the following
reasons which will lead to higher profits for the companies Government proposed to reduce corporate tax to 25 percent from 30 percent
over the next four years. However, Government of India is likely to do away
with exemptions.
Removal of Special Additional Duty on IT products. Propose to reduce the
rates of basic customs duty on certain inputs, raw materials, intermediates and
components (in all 22 items) so as to minimise the impact of duty inversion
and reduce the manufacturing cost in several sectors.
3. Larsen &Toubro and Ashoka Buildcon - These stocks can be bought
because of the following reasons which will lead to higher demand for the
industry and the performance of this companies in the current year seems to be
growing Allocation to defense increased by 10 percent to 2.4tn, of which plan
expenditure up to Rs 946 bn.
Increase in clean energy cess to Rs 200 per tonne on coal from Rs 100 per
tonne and Increase renewable target to 175 GW (100 GW solar, 60GW wind
and 15GW other) by 2022 Increased allocation for roads by Rs 140 bn.
Rs 400 bn additional support to road and other infrastructure by converting
excise on petrol and diesel in to cess and allowed to raise tax free bonds.
Increased allocation for railway by Rs 100 bn (up 33 percent Y-o-Y) and
allowed to raise tax free bonds.
4. Gitanjali Gems and PC Jewellers - These stocks can be bought because of
the following reasons which will lead to higher demand for the industry-

Govt to introduce Indian-made gold coins to reduce demand for foreign coins
and proposes to introduce gold monetisation schemes.

5. SKS Micro and Jain Irrigation- These stocks can be bought because of the
following reason which will lead to higher demand for the industry and the
performance of this companies in the current year seems to be growing Allocation of Rs. 5300 crore in micro irrigation. Aim for farm credit of 8.5
lakh crore and 20000 crore for mudra bank.