Hello, I am Priyanka Salve from Singapore.

Welcome to the latest issue of “Inside India” – where we bring you stories and updates on the world’s fastest-growing major economies.

The Indian stock market was once one of the favorite emerging markets for foreign investors, but its attractiveness is now declining. The proportion of Indian stocks held by foreign investors has currently dropped to a historic low of 14%. Now, India is proposing a tax cut plan to align its tax system with that of several Asian markets in an effort to attract these investors back.

This week, I interviewed several experts to find out whether tax cuts alone are sufficient to restore the attractiveness of the Indian stock market to foreign investors.

If you have any thoughts regarding today's communication, feel free to share them with the team.

Key Points

With a record outflow of capital from India's stock market, calls for the abolition of the long-term capital gains tax ( LTCG ) for foreign portfolio investors are growing.

Reuters reported on Monday that India's capital market regulatory authorities have urged the government to abolish the LTCG tax for foreign investors.

One of India's oldest and most influential industry organizations, the PHD Chamber of Commerce ( PHD Chamber of Commerce and Industry ), also called on the government last week to abolish this tax.

The organization believes that the capital gains tax was increased in 2024 when the stock market was "near historical highs," and now that the market environment has changed, the government needs to re-examine this decision.

Indian Finance Minister Nirmala Sitharaman ( Nirmala Sitharaman ) admitted on Monday to the outflow of foreign capital and stated that she would consider revisiting the calls for a re-examination of the LTCG tax, according to reports cited by Reuters from local media.

At the time these demands emerged, foreign investors' interest in Indian stocks had significantly declined. According to a report by Nomura on Monday, the proportion of Indian stocks held by foreign investors has dropped to a historic low of 14%.

Experts generally believe that abolishing this tax would improve the sentiment of foreign investors by aligning India's tax system with that of other emerging markets. However, they also point out that tax cuts alone may not be sufficient to attract a large return of foreign investors.

A portfolio manager from Singapore, Delorean Partners, stated: "Tax cuts can only have a marginal effect, but asset allocators are looking for expected returns, not tax incentives." He added that as profit growth becomes more unpredictable and risks increase, foreign investors have begun to withdraw from India.

Bhartia pointed out that foreign investors poured approximately 570 billion rupees (6 billion US dollars) into the Indian stock market in September 2024, but withdrew 940 billion rupees a month later, turning to pursue cheaper Chinese stocks instead. "There was no change in tax rates during these two months; what changed were the expected relative returns," Bhartia explained.

Before the record capital outflows in March this year, the outflow in October 2024 was the highest for a single month.

Risks increase

Currently, multiple risks are weighing on the Indian market, including tensions with the United States, rising energy prices, currency devaluation, and the uncertainties associated with the impact of artificial intelligence.

Nomura stated in the report that if the LTCG taxes for foreign investors are reduced, global bond yields decline, and the rupee is expected to remain stable with central bank intervention, all these factors will provide support for the Indian market.

However, Nomura added that in the longer term, geopolitical and technological uncertainties still exist, "which are suppressing long-term growth expectations."

The report shows that from January to October this year, India was the third-worst performing market in the world, only outperforming Indonesia and Turkey. India's benchmark Nifty 50 index has fallen by nearly 9% so far this year.

Three years ago, foreign investors still regarded India as one of the best-performing emerging markets. However, in the past two years, their attitude has turned cold. In 2025, there was a net withdrawal of $18.9 billion, and so far this year, they have withdrawn over $30 billion.

Global broker Bernstein stated in a report on Monday that India “must compete for capital in a situation where it once could take it for granted.” The firm believes that reversing India’s capital outflow will require multiple “catalysts,” including tax cuts and a relaxation of tensions in the Middle East.

The report states: "Indian valuations are still on the high side, and profit growth is disappointing."

According to the data in the report, India's current rolling 12-month forward price-earnings ratio is 18.6 times, which is higher than Taiwan's 16.8 times and South Korea's 3.9 times. The latter two perform prominently in emerging markets and are supported by strong artificial intelligence concept stocks.

In terms of profit growth, Bernstein expects emerging markets to see an average improvement of 45%, while India's forecasted growth rate is only 11%.

S& P Global Market Intelligence Asia-Pacific Economic Director Hanna Luchnikava - Schorsch told CNBC that tax cuts alone will not "trigger a large-scale reallocation of foreign investors to Indian stocks, as the fundamental trade-offs they face have not changed."

As cracks appear in the global artificial intelligence market, data from LSEG shows that over the past month, India's benchmark index has outperformed its global counterparts. Some investors have viewed the Indian market as a tool to hedge against artificial intelligence risks. At the beginning of this month, foreign capital inflows turned positive. But can this trend continue?

Luchnikava-Schorsch says that India has a strong story of structural growth, but investors still need profit growth to justify the premium in its valuation.

What you need to know

Canadian-Indian $5.5 billion bank acquisition met with opposition from employees and politicians

The deal in which Canadian company Fairfax Financial Holdings intends to acquire India's state-owned bank IDBI Bank for $5.5 billion is facing opposition from the bank's employees and Indian political parties.

It is reported that an Indian artificial intelligence infrastructure company is seeking to raise $3 billion in debt to purchase NVIDIA's next-generation chips.

According to a report by Bloomberg on Friday, an Indian artificial intelligence infrastructure company is said to be seeking to raise up to $3 billion in debt through bond issuance and bank loans to purchase NVIDIA's next-generation Rubin graphics processors. Headquartered in Hyderabad, AM Intelligence plans to fund the purchase of NVIDIA's next-generation chips through bond issuance and bank loans.

Next

November 6: Foreign exchange reserves data as of October 30

November 10: Diwali, stock market is closed.