The announcement of the rollback of the higher surcharge on foreign portfolio investors (FPIs) by finance minister Nirmala Sitharaman on Friday has not fully removed doubts over foreign funds staging a comeback in Indian stocks after pulling out more than $3 billion since the levy was announced in the budget on July 5.

Analysts said the rollback was expected to provide an immediate reprieve to the markets but misgivings remain over its sustained impact given the ongoing slowdown and the uncertainties surrounding the US-China trade war.

Some market experts feel that apart from improving sentiment, the step will lead to a revival in FPI investments.

However, there are others who advise caution as they only see a limited impact because of headwinds such as a slowdown both in India and abroad, apart from the US-China trade war.

The higher surcharge announced in Sitharaman’s maiden budget was one of the factors that led to investor wealth taking a huge knock of almost Rs 15,65,589 crore. It is estimated that close to 40 per cent of the registered FPIs were structured as trusts or association of persons (AOPs) and, therefore, the budget proposal led to these investors turning net sellers of stocks even though they purchased bonds.

“The removal of the enhanced surcharge on long term and short term capital gains arising from transfer of equity shares, units of equity oriented mutual funds and units of business trusts is a welcome announcement which will bring the much awaited relief for FPIs, and in turn, provide a boost to the equity markets,’’ Jairaj Purandare, chairman of JMP Advisors, said.

Market circles point out that the effect of the relief is likely to be felt on Monday when both the equity markets and the rupee could rally further. They added that expectations of more supportive measures from the government as indicated by the finance minister in her press conference could keep equities in positive territory for now.

“The markets have been in an over-sold territory and the finance minister’s announcements may lead to equities recouping some of the lost ground,’’ an analyst with a local brokerage said.

Arun Kejriwal, founder at KRIS, added that India is a market that FPIs cannot ignore and the rollback should see them coming back.

There are others who feel that it’s too early to conclude whether the direction of equities will change from here on.

Andrew Holland of Avendus Capital told a television channel that the measures announced on Friday will not be able to retrace all the “negativity that is there”, and will only help to stem the slide at the moment.

They pointed out that with the domestic economy yet to come out of the woods and several sectors feeling the pinch of a slowdown, the gains will be limited.