Edelweiss Chief Calls for Scrapping Foreign Capital Gains Tax to Boost Market Inflows

Edelweiss Financial Services Ltd. Chairman and Managing Director Rashesh Shah has urged the Indian government to remove the capital gains tax imposed on foreign investors to help revive the country's stock market and support the local currency.

Speaking in an interview in Mumbai on Friday, Shah stated that exempting foreign portfolio investors from the tax would signal a welcoming environment for overseas capital. "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 said.

Shah's comments add to a growing push from various market participants for tax exemptions on foreign portfolio investors. Finance Minister Nirmala Sitharaman stated earlier in the week that she would consider tax changes on stocks, though she stopped short of confirming specific revisions to capital gains or transaction taxes. Currently, long-term gains on listed equities held for more than a year are taxed at 12.5 percent, while short-term gains face a 20 percent levy.

Foreign investors have been net sellers of Indian stocks this year, with outflows exceeding $28 billion, according to Bloomberg data. However, recent developments, including a sharp selloff in global artificial-intelligence stocks and a decline in oil prices, have encouraged some overseas funds to return. Foreign investors have poured more than $5 billion into Indian equities over the past three weeks, driving a nearly 10 percent rebound in the domestic market.

According to Shah, oil prices and global risk-off plays remain the biggest risks for Indian stocks, though strong domestic inflows continue to provide support. He estimates that Indian mutual funds could channel roughly $40 billion to $50 billion annually into equities, with insurance companies and pension funds contributing an additional $20 billion to $25 billion. This domestic capital supply totals an estimated $60 billion to $80 billion in new annual equity inflows, creating opportunities for companies to raise funds through initial public offerings.

Amid these market conditions, the Edelweiss group outlined plans for its own corporate milestones. The group is planning an IPO for its asset management business within the next 18 to 24 months. Edelweiss Mutual Fund currently manages assets worth 1.8 trillion rupees ($19 billion) and counts US private equity firm WestBridge Capital as a key investor. Additionally, group firm EAAA India Alternatives began trading this week following an IPO that raised 12 billion rupees.

"We want all our underlying businesses, insurance companies, asset management to eventually IPO and get listed in the market," Shah noted.

"The debate over capital gains tax for foreign investors highlights the delicate balance India must maintain between encouraging domestic capital formation and attracting global liquidity. While domestic inflows from mutual funds and insurance companies provide robust market support—estimated at up to $80 billion annually—foreign institutional flows remain a critical catalyst for large-scale market expansion. For the broader business and entrepreneurial ecosystem, stable policies that foster continuous capital inflow directly impact liquidity, valuation benchmarks, and the success of upcoming initial public offerings." — Dr. Shishir Gupta, Founder & CEO, StartupLanes