India considering rollback of surcharge on foreigners to revive investor sentiment

Efforts to tax the super-rich have not been successful as Indian stocks saw $250 billion being erased since July, the month the Budget announcement was made.

Illustration by ThePrint Team

A likely rollback of a surcharge on foreigners will help stem a slide that’s erased more than $250 billion from Indian equities since early July and restore sentiment in a market struggling with a slowing economy.

Stocks headed for the biggest two-day climb since May on Friday after the ET Now television reported the government may exempt overseas funds registered as trusts from the levy. The tax and lack of measures to boost the economy in the July 5 budget led to foreigners yanking more than $2.5 billion from local shares, putting pressure on stocks and the rupee.

The government is also studying the impact of withdrawing long-term capital gains tax after a three-year holding period, ET Now channel reported.

“Experience around the world has shown that efforts to tax the super-rich have not been successful,” said Mark Mobius, who runs Mobius Capital Partners LLP. “Elimination of capital gains taxes would invigorate investments and would be very beneficial to capital markets in India and increase long term investing.”

Here are comments from other investors on the likely tax relief:

Sanchita Mukherji, Co-Founder, Blue Edge Multi-Family Investment Office

• The move will restore confidence that the government cares about investors and stakeholders to economic growth.
• Will still be adopting a wait and watch approach for the next 5 to 6 months for more affirmative government action to fathom the economic slowdown.

Deven Choksey, managing director of K.R. Choksey Shares & Securities Pvt.

• In good market conditions, we can expect $3-to-$4 billion to flow if the foreign tax is withdrawn.
• However, given the gloomy global outlook — there are chances of the U.S. sliding into recession in January-March next year — foreign investors could hold back. But local funds will take care of India markets while the FIIs are away.

Rajat Agarwal, strategist at Societe Generale

• Only a part of underperformance of Indian equities over the past month can be explained by the increase in taxation. A sluggish start to the quarterly earnings, slowdown in the economic indicators and weak sentiment in global equities are also the reasons behind the correction.
• While the market may react positively in the near term on confirmation of the measures, earnings become key for the equity markets at the current valuations. – Bloomberg