Jefferies suggests that reforming investment levies could reverse sustained outflows and provide much-needed support to the Indian rupee. Potential measures under discussion include blanket capital gains cuts, targeted foreign portfolio investor relief, or offering dollar-denominated indexation benefits through a mid-year ordinance. A rebound in foreign allocations is projected to primarily uplift large-cap stocks, especially in the financial sector which suffered $16 billion in foreign exits since October 2024.
Key points
Jefferies outlined three potential tax adjustment methods, including mid-year adjustments…: Jefferies outlined three potential tax adjustment methods, including mid-year adjustments enacted via an ordinance to encourage offshore investments.
Prior tax relief on government securities demonstrates policy efficacy, having rapidly at…: Prior tax relief on government securities demonstrates policy efficacy, having rapidly attracted $9 billion in debt inflows during June and July 2026.
Large-cap equities such as major private banks, Reliance Industries, and top technology f…: Large-cap equities such as major private banks, Reliance Industries, and top technology firms stand to gain the most from renewed foreign buying.
Sources checked by our analysis pipeline: 1
The brokerage said an equity LTCG cut could improve foreign portfolio investor sentiment and support both Indian equities and the rupee, even as the government weighs the revenue loss against the need to make Indian markets more competitive.
“Chatter around a potential Equity LTCG tax cut has picked up though no decision has been announced,” Jefferies said in a strategy note. The government will need to balance the potential fiscal impact of any tax relief against the broader objective of converging taxation across asset classes, it said.
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FIIs’ India positioning at decade low
Foreign investors have remained persistent sellers of Indian equities, with net outflows of $21 billion in fiscal 2026 followed by another $16.5 billion in fiscal 2027 through Oct. 23, according to Jefferies.India’s equity market related foreign exits have reached $110 billion over the past two years, including outflows from foreign portfolio investors, foreign promoters and private equity investors.
Positioning among global emerging market funds is also weak. India…
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