Sebi’s proposal on LTCG tax, RIL surge lift stock markets

Investor optimism also grew after reports that Sebi proposed scrapping long-term capital gains tax for foreign investors.

A rally in Reliance Industries (RIL) shares and growing optimism over a possible rollback of long-term capital gains (LTCG) tax for foreign investors gave Dalal Street plenty to cheer about on Monday, lifting both benchmark indices nearly 2%. Buying picked up through the session, with RIL stock seeing its biggest intraday upmove since April 2020.

Sebi’s proposal is a step in the right direction, but tax efficiency alone will not bring foreign capital back to India. (Bloomberg)

Sebi has recommended scrapping LTCG tax for foreign investors as India seeks to revive its underperforming equity markets, Reuters reported on Monday. The market regulator has also proposed an LTCG exemption for mutual fund investors who sell existing holdings to reinvest in other funds, the report said.

Sebi’s proposal is a step in the right direction, but tax efficiency alone will not bring foreign capital back to India, said Nirav Karkera, head of research and fund manager at W by Groww, a wealth manager.

While lower capital gains taxes would improve post-tax returns, reduce friction and make Indian equities more competitive against other emerging markets, the primary drivers of foreign flows remain earnings growth, valuations, currency stability, and India’s relative attractiveness within emerging markets, he added.

On Monday, Nifty 50 closed 1.68% higher at 23,440.80 and Sensex ended 1.66% up at 75,692.78. RIL, which carries a 7.3% weight in the Nifty 50, surged 11.6% on NSE, its biggest single-day gain since it jumped 11.9% on 7 April 2020, according to Bloomberg data.

The index started the week on a strong note, opening with a gap-up and holding on to its gains through the session. RIL, Tata Steel and JSW Steel were best performers in the benchmark index.

“The index broke out of its recent consolidation range, extending its winning streak to three sessions and signalling an improvement in near-term buying sentiment,” said Sudeep Shah, head of technical and derivatives research at SBI Securities. He pointed out that the Nifty has also moved above the 38.2% Fibonacci retracement level after a sharp correction over recent months. This means the index has recovered over a third of its recent losses, indicating improving momentum and a potential turnaround in market sentiment.