Helios Capital India's CEO, Dinshaw S Irani, has called on Indian authorities to abolish the Long-Term Capital Gains Tax (LTCG) on foreign institutional investors (FIIs) to reinvigorate the nation's equity markets. Irani contends that this move is crucial to attract significant foreign capital back to Dalal Street, which has seen substantial FII outflows recently.
FII Outflows and Tax Impact
The recent increase in LTCG tax on overseas investments in Indian equities, from 10 percent to 12.5 percent, has been identified as a significant deterrent for FIIs. This hike, according to Irani, acted as a catalyst for further sales by foreign investors who were already in a selling mode for various other reasons.
Data reveals a concerning trend: FIIs withdrew a record Rs 1.22 lakh crore from Indian equities in March, marking their ninth consecutive month of net sales. April figures showed a net equity sale of Rs 40,284 crore, indicating a continued withdrawal of foreign capital.
A Unique Tax Stance
Dinshaw S Irani highlighted that India is one of the few emerging markets, alongside China, that imposes capital gains tax on foreign flows. He argued that removing such taxes is a straightforward measure that could be implemented overnight, creating immediate positive sentiment for equities.
"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," Irani stated in an interview.
Irani emphasized the need for a "deluge" of money, not just a trickle, suggesting that removing LTCG for all players, including domestic investors, could propel the markets significantly. He believes the current period is opportune for such a change, as allocations are set to begin.
Helios AMC's Portfolio Adjustments
In response to global market volatility, particularly the West Asian conflict, Helios AMC's research and investment team actively rejigged portfolios. The firm deepened its exposure to two major holdings: HDFC Bank, India’s largest private sector lender, and Reliance Industries, the country’s top company by market capitalization.
These companies, which had seen declines of 5-18 percent during March due to investor fears over the conflict's impact on prices and valuations, were considered relatively inexpensive and added stability to the fund schemes. The flexi cap fund, managing Rs 5,600 crore of investor money, also added to its positions in Eternal Ltd (food delivery), NTPC (thermal power), GMR (airports manager), Solar Industries (defence), and BSE Ltd (capital markets giant).