Edelweiss urges India to scrap foreign capital gains tax to revive markets
Shah joins dozens who are pushing the government to exempt foreign portfolio investors from paying long-term capital gains tax on listed equities
India's Edelweiss Financial Services Ltd. chairman, Rashesh Shah, has proposed scrapping the capital gains tax imposed on foreigners to revive the country's stock market. Shah's call for the exemption comes amid increasing pressure for the government to provide a more attractive environment for foreign investors. "We need to showcase to the foreigners we want them," Shah said in an interview on Friday.
"If India wants foreign investors to come back, we want India to be a good permanent allocation for foreigners, we should do something and removing capital gains tax for foreigners might be an easier answer."
The proposal aligns with a growing chorus of voices urging the government to exempt foreign portfolio investors from long-term capital gains tax on listed equities. Finance Minister Nirmala Sitharaman has indicated she will consider tax changes on stocks but has not yet confirmed whether capital gains or transaction taxes are on the table.
Foreign investors have been selling Indian stocks in large numbers, resulting in net outflows exceeding $28 billion this year. However, a recent decline in global artificial-intelligence stocks and oil prices has prompted some overseas funds to return to the Indian market. Over the past three weeks, foreign investors have poured in over $5 billion into Indian equities, contributing to a nearly 10% rebound in the domestic market.
Shah estimates that Indian mutual funds could channel $40 billion to $50 billion annually into equities, while insurance companies and pension funds could add another $20 billion to $25 billion. This would translate into new annual domestic equity inflows of roughly $60 billion to $80 billion. A steady supply of domestic capital has opened up opportunities for companies to raise funds through initial public offerings.
Edelweiss group is planning an IPO for its asset management business within the next 18 to 24 months, Shah said. Edelweiss Mutual Fund, which manages assets worth $19 billion, has attracted investment from US private equity firm WestBridge Capital. Another group firm, EAAA India Alternatives, began trading following an IPO that raised $1.2 billion.
"We want all our underlying businesses, insurance companies, asset management to eventually IPO and get listed in the market," Shah added.
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