Tweak tax rules to do away with LTCG to attract FIIs back to Dalal Street: Helios AMC

Indian stocks have recovered sharply from recent lows on the back of value buying into beaten down valuations but Dalal Street’s road to future prosperity needs to be paved by removing long term capital gains tax on investors, a leading fund manager said on Tuesday.

"We have to do something different to attract FIIs. Our growth rates have become quite stale, boring and we see these kinds of rates in any other emerging market. All we need to attract them back again is to tweak tax rates. Ultimately, India is perhaps the only country that taxes capital gains on foreign flows which no other emerging market does, except China,” Dinshaw S Irani, CEO of Helios Capital India said in an interview to BTTV.

One of the sore points of foreign institutional investors has been the recent raising of Long-Term Capital Gains Tax to 12.5 per cent from 10 per cent earlier on overseas investments in Indian equities. FIIs were already in sell mode on Dalal Street for various other reasons and this higher tax acted as a catalyst for further sales.

March saw FIIs withdraw a record Rs 1.22 lakh crore from Indian equities, their ninth consecutive month of net sales. April's FII number stands at a net equity sale of Rs 40,284 crore. Irani says removing such taxes is easier, can be done overnight and adds to positive sentiment for equities.             

"I hope for the sake of everybody March doesn't repeat in terms of FII selling," Irani added. "To get the FII money in a big way, trickle is not what we need, we need a deluge, we need a flow of money and for that to come in the best way to take away LTCG for all players, not just FIIs but also for domestic investors and see the markets take off. Right now, is the perfect time: allocations are about to start.”

Mumbai-based Irani oversees investments in Helios AMC’s 8 fund schemes of which the largest, most popular is the Flexi cap fund which accounts for more than half of the AMC’s assets under management.

Helios AMC’s research and investment team had a very busy March as fund manager rejigged portfolios to reflect the realities of the West Asian conflict between energy-rich Iran and the US-Israel duo. The war has entered its 7th week and had derailed equities globally as crude oil prices surged on a combination of energy infrastructure being hit across the Gulf and a blocked Straits of Hormuz.

Irani said the flexi cap fund deepened its exposure to two top holdings: the largest private sector lender HDFC Bank and Reliance Industries, India’s top company by market capitalization, as both were available relatively inexpensively and that they added more stability to the scheme.

RIL and HDFC Bank had fallen 5-18 per cent during in March as investors partially sold their Indian holdings on fears that the gulf war would singe prices and valuations. Both have recovered from their most recent lows, as have major indices.

The flexi cap fund, which manages Rs 5,600 crore of investor money, added to its existing positions in food delivery company Eternal Ltd; India’s largest thermal power producer NTPC; airports manager GMR; defence play Solar Industries and capital markets giant BSE Ltd.