Foreign holdings in Indian equities have dropped to an all-time low of 14%, prompting calls for the removal of the long-term capital gains (LTCG) tax on foreign portfolio investors. The PHD Chamber of Commerce and Industry has urged the government to abolish this tax, arguing that it was increased when the market was performing well and should be reassessed given current conditions.
Finance Minister Nirmala Sitharaman has acknowledged the outflows and is considering these requests. Despite the potential benefits of a tax cut, experts like Amit Bhartia from Delorean Partners caution that it may not be enough to reverse the trend of foreign capital exiting India, as investors are more focused on expected returns than tax incentives.
The Indian market faces multiple risks, including geopolitical tensions and economic uncertainties, which have contributed to its poor performance compared to other emerging markets. Bernstein's report highlights that India's valuations remain high relative to peers, and while earnings growth is expected to improve in emerging markets, India's forecast is significantly lower.
The overall sentiment indicates that while a tax cut could provide some relief, broader economic and market conditions must improve to attract foreign investment sustainably