'Please do not tinker with...': Helios Capital's Samir Arora has a China warning in his Budget list

Helios Capital's Samir Arora in a post on X emphasized on the importance of not tightening the capital gains tax regime, cautioning that even a reformist Budget could fail if it takes investors for granted.

"It is easiest to not change anything that is working well (this long note is to basically say in simple terms - please do not tinker with capital gains taxes, term, rate etc. and let it be)," Arora wrote, suggesting such moves could unsettle the market

With the July 23 date for Union Budget approaching, investors are concerned about potential tweaks in capital gains tax — either through increased rates or by extending the holding period from one year to three.  

While investors typically look for strong GDP growth, extensive infrastructure development, and improvements in key sectors, history shows that this may not be enough. Arora cited China as a cautionary example.

"All the things investors are looking for in Indian budget were done in China - strong GDP growth, rail, road, infra, power, defense, improvement in living standards but their market still did very poorly and then ultimately acted as a bad advertisement despite many good things done in the economy, bringing down fresh investments, sentiment, confidence of promoters," he wrote. 

From 1978, China's GDP grew at an impressive average of 9-10% per year, nearly doubling between 2010 and 2020. This growth was driven by significant investments in infrastructure, defence, and living standards. Yet, the Shanghai Composite Index remained volatile, with major crashes in 2015 and 2018 erasing trillions of dollars in market value. Further, China's crackdown on the tech sector wiped out over $1 trillion from its big tech companies since November 2020. Foreign direct investment also plummeted to a 30-year low in 2023, influenced by geopolitical pressures, data privacy rules, and regulatory crackdowns.

"Stock market is a strong signal which the world tracks to assess a country, its economy, its attractiveness and pulls in more investments—FII, PE, and FDI," Arora noted. He pointed out that despite China's significant reforms, the poor performance of its stock market has negatively impacted investor sentiment.