Edelweiss' Rashesh Shah calls for tax relief as FPI outflows top $28 billion

India should consider removing capital gains tax for foreign investors to revive the stock market, boost overseas inflows and support the rupee, Edelweiss Financial Services Chairman and Managing Director Rashesh Shah told Bloomberg Television.

Shah also said strong domestic inflows could provide support during periods of global risk aversion and create more opportunities for companies to raise money through initial public offerings. Edelweiss plans to list its asset management business within the next 18 to 24 months.

“We need to showcase to the foreigners we want them,” Shah said. “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.”

Shah has joined calls for the government to exempt foreign portfolio investors from paying long-term capital gains tax on listed equities. Finance Minister Nirmala Sitharaman said earlier this week that she would consider tax changes related to stocks, but did not confirm whether the government was examining revisions to capital gains or transaction taxes.

Long-term gains on listed equities held for more than a year are taxed at 12.5%, while short-term gains are taxed at 20%. Foreign investors have recorded net outflows of more than $28 billion from Indian stocks so far this year, according to data compiled by Bloomberg. However, a sharp sell-off in global artificial intelligence stocks and a decline in oil prices have prompted some overseas funds to return to India.

Foreign investors have invested more than $5 billion in Indian equities over the past three weeks, helping the domestic market rebound by nearly 10%, the data showed.

Shah said oil prices and global risk-off moves were the biggest risks for Indian stocks, although strong domestic inflows offered support during such periods. He estimated that Indian mutual funds could invest about $40 billion to $50 billion in equities annually, while insurance companies and pension funds could contribute another $20 billion to $25 billion.

This would result in new domestic equity inflows of about $60 billion to $80 billion annually, Shah said. According to him, a steady supply of domestic capital has created opportunities for companies to raise more funds through IPOs.

Edelweiss Mutual Fund, which manages assets worth 1.8 trillion rupees, or $19 billion, counts US private equity firm WestBridge Capital among its key investors. Another group firm, EAAA India Alternatives, began trading this week after an IPO that raised Rs 12 crore.

“We want all our underlying businesses, insurance companies, asset management to eventually IPO and get listed in the market,” Shah said. His comments linked the proposed tax exemption for foreign investors with efforts to revive overseas participation, while domestic institutional inflows continued to support Indian equities and the IPO market.