India’s financial markets could be heading towards a significant transformation after the country’s securities regulator proposed eliminating long-term capital gains tax for foreign investors. The initiative follows a record $31 billion withdrawal from Indian equities this year, raising concerns over the country’s ability to attract international capital despite its strong economic growth.
Regulator proposes sweeping changes
The Securities and Exchange Board of India (SEBI) has recommended that the government abolish the 12.5% long-term capital gains tax currently imposed on foreign investors holding Indian securities for more than one year.
The proposal, reported on Monday, 2 November, forms part of recommendations submitted ahead of India’s federal budget in February.
SEBI has also suggested allowing domestic mutual fund investors to switch between investment schemes without triggering capital gains taxation, provided their investments have been held for more than a year.
The recommendations are not binding and would require government approval.
Foreign investors withdraw record amounts
India has experienced substantial foreign capital outflows as international investors increasingly favour other emerging markets.
Foreign investors have sold approximately $31 billion in Indian equities during 2026, according to market data.
The Nifty 50 benchmark has declined 4.8% over the past two years, contrasting sharply with a 40% advance in the broader MSCI Emerging Markets Index.
The divergence has intensified concerns that India’s tax structure and relatively disappointing corporate earnings are discouraging overseas investment.
Tax reform could improve competitiveness
Investment analysts believe eliminating long-term capital gains taxation could significantly improve India’s attractiveness to international institutions.
Estimates suggest the reform could increase foreign investors’ returns by approximately 2.3 percentage points.
The proposed changes would place India in a stronger position when competing with other emerging economies for global investment flows.
However, taxation represents only one factor influencing foreign capital allocation. Corporate profitability, currency stability and geopolitical risks remain equally important.
Indian shares rally as oil prices retreat
The proposals emerged as Indian equities opened Monday’s trading session strongly.
The Nifty 50 advanced 1.08% to 23,304.90 points during early trading, while the BSE Sensex climbed 1.27% to 75,404.64 points.
Reliance Industries surged approximately 6% following better-than-expected quarterly earnings, supported by stronger refining and petrochemical margins.
Falling crude oil prices also helped market sentiment, providing relief to an economy heavily dependent on imported energy.
A crucial test for India’s financial ambitions
India remains one of the world’s most important emerging investment destinations, supported by expanding financial services, digital infrastructure and domestic consumption.
Nevertheless, sustained foreign selling has exposed weaknesses in investor confidence.
Removing capital gains taxation could encourage renewed international participation, strengthen market liquidity and support corporate fundraising.
The government’s decision ahead of February’s budget may therefore prove important for India’s ambitions to establish itself as a leading global financial market.
NewsHub Finance | India & Financial Markets | 2 November 2026
India's financial markets could be heading towards a significant transformation after the country's securities regulator proposed eliminating long-term capital gains tax for foreign investors. The initiative follows a record $31 billion withdrawal from Indian equities this year, raising concerns over the country's ability to attract international capital despite its strong economic growth.
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