Recent market strength has seen domestic equities gain 6% in dollar terms since October 8, outpacing regional counterparts in Taiwan and South Korea. Market momentum is further supported by SEBI recommending the complete removal of the 12.5% long-term capital gains tax for overseas entities. Despite this optimism, analysts caution that tax adjustments remain a secondary catalyst compared to macroeconomic fundamentals. Full recovery from the nearly $64 billion two-year foreign outflow will likely depend on corporate valuations and lower crude oil prices.
Key points
Nomura projects that favorable tax revisions alongside falling global bond yields could p…: Nomura projects that favorable tax revisions alongside falling global bond yields could push the Nifty past its March 2027 target of 24,000.
JM Financial considers tax cuts secondary, estimating they would yield only $3 billion to…: JM Financial considers tax cuts secondary, estimating they would yield only $3 billion to $5 billion in FY28 bull-case inflows.
Analysts maintain that sustained crude oil price declines and attractive equity valuation…: Analysts maintain that sustained crude oil price declines and attractive equity valuations remain the primary prerequisites for lasting foreign capital returns.
Sources checked by our analysis pipeline: 1
The inflows come amid growing expectations that the government's review of capital market taxes, including long-term capital gains (LTCG) tax, could help attract overseas investors back to Indian equities.
Global brokerage Nomura believes foreign institutional investors (FIIs) may be nearing the end of their record-breaking selling spree, with moderating outflows coinciding with stronger-than-expected corporate earnings and valuations that have slipped below their post-pandemic averages.
The earnings trajectory is showing signs of improvement. Of the 134 companies in Nomura's BSE 200+ universe that had reported results, normalised profit after tax (PAT) grew 34% year-on-year, beating consensus estimates by 18%. Excluding oil and gas companies, profit growth stood at 29%, still 5% above expectations.
Nomura said foreign flows could revive in the near term, given that investor expectations remain low and valuations across most sectors are below their post-pandemic averages.
Indian equities have gained 6% in dollar terms since October 8, outperforming most global markets. The Nifty has also outperformed AI-heavy indices in South Korea and Taiwan, as well as the Nasdaq, amid a correction in global AI stocks.
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Sovereign debt markets found relief as retreating global energy benchmarks lessened immediate pressure on domestic consumer price pressures and the local currency. The gains also pulled overnight swap rates downward as traders reassessed the interest rate outlook for the Reserve Bank of India. However, persistent geopolitical instability in the Middle East continues to create uncertainty for the world's third-largest oil importer.
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