Hello, this is Priyanka Salve writing from Singapore.
Welcome to the latest edition of Inside India. A one-stop-shop for the stories and developments of the world’s fastest growing large economy.
Once an emerging market popular with foreign investors, Indian stocks are losing their appeal. Foreign ownership of Indian stocks is currently at an all-time low of 14%. Now, to win back these investors, tax cuts are being proposed that would bring India on par with some Asian markets.
This week, I spoke to experts to find out whether tax cuts alone can restore the attractiveness of Indian stock markets to foreign investors.
Do you have any thoughts on today’s newsletter? Share them with the team.
big story
Amid record capital outflows in the Indian stock market, calls are growing in India for the removal of long-term capital gains tax (LTCG) for foreign portfolio investors.
Reuters reported on Monday that India’s capital market regulator has asked the government to scrap LTCG tax on foreign investors.
The PHD Chamber of Commerce and Industry, one of India’s oldest and most prominent industry associations, last week urged the government to abolish the tax.
The report argued that capital gains tax was raised in 2024 at a time when the stock market was “near record highs”, but that the government needs to review it now that market conditions have changed.
The country’s Finance Minister Nirmala Sitharaman on Monday granted an outlet for foreign capital outflows, adding that she would consider requests for a review of the LTCG tax, local media reported.
Mumbai, Maharashtra, India – 2 November 2026: A shopkeeper greets customers with a lantern under a light bulb at the Lantern Market in Mumbai ahead of Diwali, the Hindu festival of lights. Diwali, the festival of lights, is celebrated by Hindus across the country by purchasing lanterns, new clothes, sweets and snacks ahead of the festival.
Sopa Images | Light Rocket | Getty Images
The demand comes at a time when foreign investors’ appetite for Indian stocks is plummeting. Foreign ownership of Indian stocks is at an all-time low of 14%, according to a Nomura report on Monday.
Experts agree that the removal of tax breaks will improve foreign investor sentiment by bringing India’s tax system on par with other emerging markets. But tax cuts alone may not be enough to lure foreign investors back in droves, they said.
“Tax breaks help at the last minute, but allocators tend to buy expected returns rather than tax breaks,” said Amit Bhatia, portfolio manager at Singapore-based DeLorean Partners. He added that foreign investors are exiting India as risks have skyrocketed while revenue growth has become unpredictable.
Bhatia highlighted that foreign investors pumped about 570 billion rupees ($6 billion) into Indian stocks in September 2024 and withdrew 940 billion rupees a month later in pursuit of cheaper Chinese stocks. “During those two months, tax rates did not change. Relative returns did,” Bhatia explained.
Until the record-breaking outflow in March of this year, the outflow in October 2024 was the highest in a single month.
increasing risk
Multiple risks are currently weighing on the Indian market, including strained relations with the US, rising energy prices, a weak currency, and uncertainty over the impact of artificial intelligence.
Possible LTCG cuts for foreign investors, lower global bond yields and expectations of central bank intervention to sustain the rupee will support the Indian market, Nomura said in a report.
However, from a longer-term perspective, concerns around geopolitical and technological uncertainties persist, “weighing on long-term growth expectations,” he added.
According to the report, from January to October this year, India was the third worst-performing market in the world after Indonesia and Turkey. India’s benchmark Nifty 50 has fallen nearly 9% since the beginning of the year.
Foreign investors, who hailed India as the best-performing emerging market just three years ago, have underperformed over the past two years, cashing out a net $18.9 billion in 2025 and more than $30 billion so far this year.
Global brokerage firm Bernstein said in a report on Monday that India “must fight for capital with competition we once took for granted.” He argued that multiple “catalysts” are needed to reverse capital flight from India, including tax cuts and easing tensions in the Middle East.
“India’s valuations remain expensive, but earnings growth has been disappointing,” the report said.
According to data shared in the report, India’s expected price-to-earnings ratio for the next 12 months is 18.6 times, higher than Taiwan’s 16.8 times and South Korea’s 3.9 times. Both of these markets are outperforming in emerging markets, supported by strong artificial intelligence names.
In terms of revenue growth, emerging markets are expected to improve by an average of 45%, while India’s forecast is much slower at 11%, Bernstein said.
“Tax cuts alone will not trigger a large-scale reallocation to Indian equities because the fundamental trade-offs faced by foreign investors remain the same,” Hanna Ruchnikava Schorsch, head of Asia-Pacific economics at S&P Global Market Intelligence, told CNBC.
India’s benchmark indexes have outperformed their global peers over the past month, LSEG data showed, as some investors see Indian markets as a hedge against AI as cracks appear in the global AI bull market. Foreign capital inflows were positive earlier this month. But can they be sustained?
Ruchnikava-Shorsch said India has a strong structural growth story, but investors still need earnings growth to justify the valuation premium.
need to know
Canada and India’s $5.5 billion bank acquisitions draw opposition from workers and politicians
Canadian company Fairfax Financial Holdings’ proposed $5.5 billion takeover of IDBI Bank is facing opposition from employees of India’s state-run financial institution and the country’s political parties.
Indian AI infrastructure company reportedly looking to raise $3 billion in debt to buy Nvidia’s next-generation chips
An Indian artificial intelligence infrastructure company is reportedly looking to raise debt to fund the purchase of Nvidia’s Rubin graphics processing units. Hyderabad-based company AM Intelligence plans to raise up to $3 billion through a bond issue and bank loans to buy Nvidia Corp’s next-generation chips, Bloomberg reported on Friday.
very soon
November 6: Foreign exchange reserve data as of October 30
November 10: Stock market closed for Diwali
