It's not about taxes: Shankar Sharma explains why stock market is negative
The Indian stock market has been unable to reclaim the peak it touched in late September 2024, with the Nifty remaining below its all-time high for nearly 13 months.
- Sep 16, 2025,
- Updated Sep 16, 2025 2:37 PM IST
Investor Shankar Sharma on Tuesday countered former CEO Ajay Bagga's claims that high taxes are dragging Indian markets, arguing instead that weak economic growth is the real culprit.
"Ajay, relocating to anywhere in the world, does not get you rid of stock market taxes in India (I know a bit about this). You pay exactly what a resident Indian pays. The market is not negative because of taxes. It is negative because of poor growth," Sharma said in response to Bagga.
He linked the market's performance to government spending. "Whatever growth we are getting has been a function of high government Capex. In reasonable part, the money for that is coming from the stock market taxes. (Corporate taxes, personal tax, all have been cut over time). So if you reduce the stock market taxes, you will not have enough capital to spend on capital expenditure which will in turn, reduce growth, which in turn, will reduce stock market performance," he said.
Sharma highlighted what he called a structural problem. "The real problem which I have pointed out many times in our fisc is the ‘Stockmarketification’ of it: we are now heavily reliant on a very volatile & short-term source of capital and are using that to fund long-dated capex. If a company were to do this, we would be shorting it," he added.
He also recalled that India had achieved faster growth in the past without depending so heavily on market-driven revenues. "In the past we have seen India grow between 8 and 10%, without this heavy reliance on the stock market for providing budgetary support. What is really useful is to analyse that as to how we got here," Sharma said.
His remarks came after Bagga said India's tax regime is "butchering the golden goose" of investors. The former CEO argued that a poorly designed capital gains system and a tax on share buybacks have constrained the market, which has stayed below its all-time high for nearly 13 months.
"We will soon complete 13 months of the Nifty being below its all-time high hit in end Sep 2024. The high capital gains taxes on all asset classes and a very poorly thought out tax on share buy backs is constraining Indian markets. The golden goose is being butchered in the quest to extract the maximum from the 5-6 crore investors/traders/affluent," he wrote.
Bagga cited South Korea as an example. "Korea offers a good model...proposed high capital gains taxes were shelved in the light of the global policy chaos. Korean markets are hitting daily record highs. Not a one-on-one correlation, there is a lot else going right for South Korea for now. But this has been a huge sentiment booster," he said.
South Korea's government abandoned a plan to lower the capital gains tax threshold for stock holdings, after the proposal triggered a sharp market selloff and investor opposition. The reversal marked President Lee Jae Myung’s first major policy climbdown since taking office in June.
Bagga warned that India risks losing investors. "We see thousands of UHNI investors relocating their base to tax advantaged locations to avoid these high taxes. The revenue loss increases with every hike in taxes and hike in other levies. Need some action to unleash positive sentiments in the Indian investment landscape," he said.
The Indian stock market has been unable to reclaim the peak it touched in late September 2024, with the Nifty remaining below its all-time high for nearly 13 months. Despite periods of recovery, persistent concerns over weak growth, high taxation on capital gains, and global economic headwinds have kept sentiment subdued.
Investor Shankar Sharma on Tuesday countered former CEO Ajay Bagga's claims that high taxes are dragging Indian markets, arguing instead that weak economic growth is the real culprit.
"Ajay, relocating to anywhere in the world, does not get you rid of stock market taxes in India (I know a bit about this). You pay exactly what a resident Indian pays. The market is not negative because of taxes. It is negative because of poor growth," Sharma said in response to Bagga.
He linked the market's performance to government spending. "Whatever growth we are getting has been a function of high government Capex. In reasonable part, the money for that is coming from the stock market taxes. (Corporate taxes, personal tax, all have been cut over time). So if you reduce the stock market taxes, you will not have enough capital to spend on capital expenditure which will in turn, reduce growth, which in turn, will reduce stock market performance," he said.
Sharma highlighted what he called a structural problem. "The real problem which I have pointed out many times in our fisc is the ‘Stockmarketification’ of it: we are now heavily reliant on a very volatile & short-term source of capital and are using that to fund long-dated capex. If a company were to do this, we would be shorting it," he added.
He also recalled that India had achieved faster growth in the past without depending so heavily on market-driven revenues. "In the past we have seen India grow between 8 and 10%, without this heavy reliance on the stock market for providing budgetary support. What is really useful is to analyse that as to how we got here," Sharma said.
His remarks came after Bagga said India's tax regime is "butchering the golden goose" of investors. The former CEO argued that a poorly designed capital gains system and a tax on share buybacks have constrained the market, which has stayed below its all-time high for nearly 13 months.
"We will soon complete 13 months of the Nifty being below its all-time high hit in end Sep 2024. The high capital gains taxes on all asset classes and a very poorly thought out tax on share buy backs is constraining Indian markets. The golden goose is being butchered in the quest to extract the maximum from the 5-6 crore investors/traders/affluent," he wrote.
Bagga cited South Korea as an example. "Korea offers a good model...proposed high capital gains taxes were shelved in the light of the global policy chaos. Korean markets are hitting daily record highs. Not a one-on-one correlation, there is a lot else going right for South Korea for now. But this has been a huge sentiment booster," he said.
South Korea's government abandoned a plan to lower the capital gains tax threshold for stock holdings, after the proposal triggered a sharp market selloff and investor opposition. The reversal marked President Lee Jae Myung’s first major policy climbdown since taking office in June.
Bagga warned that India risks losing investors. "We see thousands of UHNI investors relocating their base to tax advantaged locations to avoid these high taxes. The revenue loss increases with every hike in taxes and hike in other levies. Need some action to unleash positive sentiments in the Indian investment landscape," he said.
The Indian stock market has been unable to reclaim the peak it touched in late September 2024, with the Nifty remaining below its all-time high for nearly 13 months. Despite periods of recovery, persistent concerns over weak growth, high taxation on capital gains, and global economic headwinds have kept sentiment subdued.