Daijiworld Media Network - Mumbai
Mumbai, Nov 7: India should consider removing capital gains tax on foreign investors to attract overseas funds, revive the stock market and support the rupee, Edelweiss Financial Services Ltd Chairman and Managing Director Rashesh Shah has said.
Speaking to Bloomberg Television anchors Menaka Doshi and Haslinda Amin in Mumbai on Friday, Shah said India needed to send a clear message that it welcomed foreign investors and wanted them to make long-term investments in the country.
He suggested that scrapping capital gains tax for foreign investors could be a relatively simple measure to encourage their return to the Indian market.
Shah's comments come amid growing demands from market participants for the government to exempt foreign portfolio investors (FPIs) from long-term capital gains tax on listed equities. Finance Minister Nirmala Sitharaman said earlier this week that she would consider changes to stock market taxation, but did not specify whether the government was examining capital gains or transaction taxes.
Currently, long-term capital gains on listed equities held for more than a year are taxed at 12.5 per cent, while short-term capital gains are taxed at 20 per cent.
Foreign investors have been significant net sellers of Indian equities, with outflows exceeding $28 billion so far this year, according to Bloomberg data. However, a sharp sell-off in global artificial intelligence stocks and declining oil prices have encouraged some overseas funds to return to the Indian market.
Foreign investors have reportedly invested more than $5 billion in Indian equities over the past three weeks, contributing to a nearly 10 per cent recovery in the domestic stock market.
Shah identified oil prices and global risk-off sentiment as major risks for Indian equities, but said strong domestic investment flows were providing support during periods of volatility.
He estimated that Indian mutual funds could invest around $40 billion to $50 billion annually in equities, while insurance companies and pension funds could contribute another $20 billion to $25 billion. This could take annual domestic equity inflows to approximately $60 billion to $80 billion.
According to Shah, the steady availability of domestic capital has also created opportunities for companies to raise funds through initial public offerings (IPOs).
Edelweiss is planning to launch an IPO of its asset management business within the next 18 to 24 months. Edelweiss Mutual Fund, a group company, manages assets worth around ?1.8 trillion, or $19 billion, and counts US private equity firm WestBridge Capital among its key investors.
Another group company, EAAA India Alternatives, began trading this week after raising ?1,200 crore through its IPO.
Shah said the group intended to eventually list all its underlying businesses, including insurance and asset management companies, on the stock market.