SEBI Proposal to Scrap LTCG Tax for Foreign Funds Could Halt Market Outflows
HDFC Securities CEO Dhiraj Relli says scrapping LTCG tax for foreign funds could stop outflows and boost Indian equity attractiveness.
The Indian equity market could be on the verge of a significant boost if the Securities and Exchange Board of India's (SEBI) proposal to scrap the Long-Term Capital Gains (LTCG) tax for foreign funds is implemented. According to Dhiraj Relli, Managing Director and CEO of HDFC Securities, removing the 12.5 per cent LTCG tax would make Indian equities far more attractive to global investors and help curb the continuous outflow of foreign capital.
Addressing Foreign Investor Demands
In an exclusive conversation with ANI, Dhiraj Relli highlighted that the abolition of LTCG tax has been a primary demand from overseas investors for some time. He described the SEBI proposal as a "step in the right direction" and a positive signal for the broader markets.
While Relli noted that the final authority on taxation lies with the Government of India, he pointed out that positive indications from the Finance Minister suggest a willingness to address the concerns of international investors.
Combatting the Outflow Trend
The urgency of such a move is underscored by the recent behavior of foreign portfolio investors. In 2026, foreign investors have withdrawn approximately Rs 3.07 lakh crore from Indian equities. Relli explained that these investors have been selling relentlessly because they perceive the Indian market as less attractive when calculating returns in dollar terms.
By reducing the tax burden, India could potentially "arrest the outflows" and regain its appeal as a premier destination for global capital.
Impact on GDP and Private Investment
Despite the potential for market sentiment to improve, Relli clarified that changes in taxation would not have a direct impact on India's GDP growth. He emphasized that GDP is driven by different fundamental factors, including:
- Domestic demand
- Public capital expenditure (capex)
- Ground-level activity in the manufacturing and services sectors
The State of Private Capex
Addressing the revival of private investment, Relli cautioned against viewing record GST collections of Rs 2.3 lakh crore or strong festive demand as definitive proof of a sustained recovery in private capital expenditure. He argued that private capex requires more than just seasonal spikes; it needs sustained demand and a stable policy environment.
While the government has handled the "heavy lifting" through public capex, Relli stressed that entrepreneurs need "animal spirit," which can only be revived through consistent taxation and a regulatory framework that does not undergo frequent tweaks.
Investment Advice for Retail Investors and HNIs
Amidst current market volatility, the HDFC Securities CEO advised retail investors and High-Net-Worth Individuals (HNIs) to avoid knee-jerk reactions or attempts to time the market. Instead, he recommended a disciplined approach to asset allocation.
Recommended Equity Split
Relli suggested a strategic tilt toward stability, proposing the following allocation for equity portfolios:
- Large-cap stocks: 70% (due to more comfortable valuations)
- Mid and small-cap stocks: 20% to 30%
Sectoral Opportunities
For those looking for growth opportunities, Relli identified several key sectors that currently offer potential:
- Private sector banks
- Capital market-related stocks
- Automobiles and auto ancillaries
- Consumer discretionary stocks