Edelweiss Chief Urges India to Scrap Capital Gains Tax on Foreign Investors

Could a Tax Concession Bring Foreign Investors Back to Indian Equities?

A proposal from Edelweiss’s Rashesh Shah puts the focus on how India competes for overseas capital—and how much domestic money can cushion market volatility.

A proposal aimed at India’s appeal as a long-term allocation

Shah’s argument is that India should make a clearer case to foreign investors seeking a lasting allocation to the country. He suggested removing capital gains tax on foreign investors as a possible way to encourage them to return. It is a proposal, not a government decision: Finance Minister Nirmala Sitharaman said she would consider changes to stock taxes but did not confirm whether capital gains or transaction taxes were under review.

The distinction matters because listed-equity gains currently face different rates depending on the holding period. Long-term gains on shares held for more than a year are taxed at 12.5%, while short-term gains are taxed at 20%. Any proposed exemption would therefore need to be assessed against the existing framework and the exact investors and transactions it covered; the details of Shah’s suggestion have not been set out as a policy plan.

Foreign flows have swung, but domestic capital is a buffer

Foreign investors have sold more than $28 billion of Indian stocks so far this year. More recently, however, a selloff in global artificial-intelligence stocks and lower oil prices have been followed by renewed overseas buying: foreign investors put more than $5 billion into Indian equities over the past three weeks, helping drive a nearly 10% rebound in the domestic market.

That reversal shows how quickly international flows can change with global conditions. Shah identified oil prices and global risk-off episodes as key risks for Indian stocks, while pointing to domestic inflows as support during such periods. The implication is not that local money eliminates volatility, but that it may help absorb some selling pressure. A tax change could potentially improve the after-tax appeal of Indian equities for overseas investors, though the recent inflows also show that global market moves can influence buying.

Domestic savings are shaping the market’s funding capacity

Shah estimates that mutual funds could direct $40 billion to $50 billion a year into equities, with insurers and pension funds adding another $20 billion to $25 billion. His estimate puts potential annual domestic equity inflows at about $60 billion to $80 billion. These are estimates, not guaranteed flows, but they underline why local investors have become an important part of the market’s funding picture.

Shah also sees this capital base as an opportunity for companies to raise funds through initial public offerings. Edelweiss plans to take its asset-management business public in the next 18 to 24 months. Its mutual fund business manages ₹1.8 trillion ($19 billion), and group firm EAAA India Alternatives began trading this week after raising ₹1,200 crore in an IPO. The plans point to a broader ambition to list underlying businesses, including insurance and asset management; they do not establish a timetable for each proposed listing.

Key Highlights

• Rashesh Shah has urged India to consider removing capital gains tax for foreign investors; no policy change has been confirmed.
• Listed-equity gains are taxed at 12.5% for holdings longer than a year and 20% for shorter holdings.
• Foreign investors have sold more than $28 billion of Indian stocks so far this year, but recently invested more than $5 billion over three weeks.
• Shah estimates potential annual domestic equity inflows of $60 billion to $80 billion from mutual funds, insurers and pension funds.
• Edelweiss plans an IPO of its asset-management business in 18 to 24 months, while EAAA India Alternatives has already listed.

Investor Note: Treat the tax proposal as an advocacy call, not an indication that exemptions are imminent. Investors should watch for a clear government position and assess foreign-flow trends alongside domestic participation and global risks such as oil prices and risk aversion.