Global funds return to India's market despite high taxes

Global investment funds are slowly coming back to India's stock market despite high taxes. Investors like Carson Block are vocal about their concerns regarding these taxes. They believe that India's capital gains tax needs reform to attract more foreign money. Last week marked the first time in a while that global funds bought Indian stocks. However, this year, these funds have mostly been selling. Investors cite a mix of an uncertain economic outlook and high capital gains taxes as reasons for their hesitation. Compared to countries like China, India's tax rules make it less attractive for foreign investors. The Indian government has not indicated plans to change its capital gains tax. Officials aim to treat both local and foreign investors equally. This has led to criticism from several quarters, including from Block, who argues that without tax reforms, attracting foreign capital will remain difficult. In 2025, overseas funds withdrew about $15 billion from India's stock market. However, they have been investing in India’s debt market, as low rates and bond inclusion in global indexes provide new opportunities. While Block considered starting a fund in India, he emphasized the need for clearer expectations regarding capital gains taxes. Investors looking to reduce their tax burden have a few strategies. Some choose to set up operations in special financial hubs like Gujarat International Finance Tec-City, though this requires local staff. Many bond investors prefer to buy rupee bonds issued abroad to avoid local taxes altogether, simplifying their investments in Indian debt markets.