Stocks jump as Sitharaman says government will hear investors on LTCG tax

Mumbai: Indian stocks rallied on Tuesday, with the Nifty 50 posting its biggest gain in over two months, after finance minister Nirmala Sitharaman said the government would hear investors’ views on capital gains taxation. Her remarks lifted sentiment in a market battered by sustained foreign selling, though no policy change was signalled.
The Nifty 50 rose 1.6% to close at 22,721.95 on Tuesday, its biggest single-day percentage gain since 3 August. The Sensex gained 1.5% to settle at 73,033.78, marking its strongest rise since 15 April. The rally came after the Nifty fell in eight of the previous nine weeks, as sustained foreign investor selling weighed on sentiment.

Speaking at the Bloomberg New Economy Forum in New Delhi on Tuesday, Sitharaman said Indian and foreign investors had raised questions about long-term capital gains (LTCG) tax, the securities transaction tax (STT) and whether different asset classes should be taxed on a similar footing, according to media reports.“The finance minister’s comments have certainly brought some cheer to the market,” said Feroze Azeez, joint CEO of Anand Rathi Wealth.
While she had not indicated any decision on LTCG or STT, the government’s willingness to hear industry views was encouraging, he said. Taxation is an important consideration for foreign investors, particularly when competing Asian markets do not levy capital gains tax on equity investments.

Any rationalisation could improve India’s attractiveness and encourage greater long-term foreign participation, Azeez added. The Nifty has fallen about 13% this calendar year, putting it on track for its first annual decline in 11 years, as foreign investors sold $32 billion worth of Indian equities.
Foreign portfolio investors (FPIs) were net sellers of ₹1,305 crore on Tuesday, while domestic institutional investors (DIIs) were net buyers of ₹2,439 crore, according to provisional BSE data. The Union budget in July 2024 raised the tax rate on long-term capital gains from listed equity shares and equity-oriented mutual funds held for more than a year to 12.5% from 10%.

“Although the remarks did not signal a policy change, they raised hopes of a possible reassessment of a tax that has been a point of concern for investors,” said Ponmudi R, CEO of Enrich Money, a Securities and Exchange Board of India-registered online trading and wealth-tech firm.
Other positives Azeez cautioned against viewing taxation as the sole driver of market performance. Improving sentiment towards information technology stocks, some recovery in the rupee and easing bond yields had also contributed to the positive mood.

Crude oil prices, global interest rates and corporate earnings would remain important in determining whether foreign investors return, he said. IT stocks led Tuesday’s rally, with the Nifty IT rising 5.2%, the biggest gain among NSE sectoral indices.
The Nifty Midsmall IT & Telecom index climbed 2.8%, while the Nifty Realty index rose 2.5%. The rupee gained 0.5% on Tuesday, extending its 1% rise on Monday after the Reserve Bank of India announced measures to curb speculation. Foreign investors have continued to sell Indian equities.

FPIs withdrew ₹36,184.15 crore from Indian shares in October so far, while DIIs bought ₹40,355.32 crore. Except for February, July and August, foreign investors have largely been net sellers this year, with domestic institutions providing a counterweight.
Market challenges Persistent geopolitical tensions could keep interest rates elevated and prolong market challenges, said Saurabh Mukherjea, founder and chief investment officer of Marcellus Investment Managers. He cited conflicts involving Russia, Ukraine, Iran and the US.

“At the large-cap index level, the chances of weak returns over a prolonged period are quite high,” Mukherjea said, adding that opportunities could still emerge in quality stocks in India, small-cap stocks in the US and select real-asset classes. A broader market recovery would depend on geopolitical tensions easing and policymakers adopting a more constructive approach towards foreign investment and trade, he added.
The broader market lagged the rally. The Nifty Midcap 100 rose 1%, while the Nifty Smallcap 250 gained just 0.3% on Tuesday, suggesting that some investors may have used the rebound to book profits. Earnings outlookCorporate earnings will be crucial in determining whether the market recovery can be sustained, as companies’ ability to meet profit expectations will shape stock performance and support valuations.

In a 7 October report, Nuvama Institutional Equities estimated that Nifty 50 earnings would grow 22% year-on-year in Q2FY27, taking first-half growth to around 20%—above its full-year forecast of 14-15%. This could limit earnings downgrades, the brokerage said.
For its coverage universe, excluding oil marketing companies (OMCs), Nuvama expects profit growth of around 20% in the first half of FY27. Maintaining a similar growth rate in the second half could prove challenging because of a high base following goods and services tax (GST) cuts, a weak rupee, El Niño risks, the delayed impact of the war on demand and rising global interest rates.

Nuvama expressed doubts about whether the strong first-half earnings growth could be sustained. Against this backdrop of rising rates and a highly polarised market, the brokerage favoured a contrarian shift towards large-cap stocks and defensive sectors.