'Foreign investors losing interest in India': Zerodha's Nithin Kamath lists what needs fixing

Zerodha founder and CEO Nithin Kamath said on Thursday that foreign investor interest in India has "pretty much died out", pointing to a mix of global risks and domestic policy factors.

Kamath said he had asked an industry participant about foreign allocations to India. "The TLDR: Interest has pretty much died out. India is seen as geopolitically exposed, especially to an oil shock," he wrote in a post on LinkedIn. 

"Interest has pretty much died out. India is seen as geopolitically exposed, especially to an oil shock. There are no real AI plays. Valuations are rich. And the rupee situation doesn't help," he added.

Kamath said some investors who were sitting on gains had exited and were now looking at other markets. "On top of that, investors who were sitting on gains have taken money off the table and are now looking at markets like Japan, Taiwan, Korea, Europe etc instead."

He also flagged tax-related concerns. "Our LTCG/STCG structure and the increase in STT have made India less attractive compared to other markets that are seeing inflows," he wrote, adding that fixing these issues could help attract foreign portfolio investors back.

Vedanta chairman Anil Agarwal has also warned that India remains vulnerable to disruptions in West Asia, particularly to energy supplies.

India imports about 88% of its oil requirements, with a significant share passing through the Strait of Hormuz, making it sensitive to geopolitical tensions in the region.

Market experts and investors have also raised concerns about a hike in the Long-Term Capital Gains (LTCG) tax. Finance Minister Nirmala Sitharaman increased the long-term capital gains tax on equities from 10% to 12.5% in the 2024 Union Budget.

Several experts, including Sameer Arora and Saurabh Mukherjea, have criticised the move, saying it could deter foreign investors and affect broader participation in equity markets. 

Kamath said attracting foreign investors remains important. "If we need to attract FPIs back, and we do, fixing this feels like pretty low-hanging fruit."