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Below the Quote on FPI Expert insights November 2026 from Manoj Purohit, Partner & Leader, Financial Services Tax, Tax & Regulatory Services, BDO India

"Apart from festive season in India round the corner, there are couple of more reasons to cheer for India capital market. The most significant one which has let the foreign investor fraternity to reassess their current stance on India exposure is the current discussion and representations by the Industry bodies and various associations to push for a tax break on long term investments. In addition to the tax expectation, the recent US midterm election will have an impact on optimization and  revival of various trade policies and etc.

 In 2026, till date FPIs have been constantly exiting the Indian capital market, however the recent few weeks have witnessed wait-and-watch approach towards large stake sales in Indian listed companies, as expectations of capital market tax reforms, gathers momentum. The recent propositions made to the government and positive assurance from the Finance Ministry to express readiness to revisit the taxation framework for long term investors in the upcoming Budget 2027, has made foreign investors to pause and relook at India equity market from a long-term perspective.

 Investors holding long-term positions with significant unrealised gains are reportedly postponing exits while awaiting clarity on whether the government will rationalise the taxation of equity investments and reduce transaction costs.

 The development comes at a time when India is evaluating measures to strengthen its position as a preferred destination for global capital. Discussions among policymakers, regulators and industry stakeholders have centred on rationalising the Securities Transaction Tax (STT), simplifying capital gains taxation and providing potential relief under the Long-Term Capital Gains (LTCG) regime for offshore institutional investors.

 Expectations of a broader overhaul have gathered pace in recent months. Industry expectations is centred around, abolishing the current 12.5% LTCG tax on foreign investors' equity investments resulting in reduction in tax costs. Industry bodies have echoed similar views and advocated restoring the LTCG exemption on listed securities and enhancing tax certainty thereby rationalising LTCG, Short-Term Capital Gains (STCG) tax and STT provisions. Together, these proposals aim to reduce transaction costs, improve market liquidity, deepen capital markets, making it competitive with other jurisdictions which has very minimal or NIL capital gains tax and attract long-term foreign investment.

 The discussion on making equity tax reforms lucrative is also relevant given that the revenue authorities had already announced few favourable tax measures associated with certain debt investments, including specified government securities (G-Secs). With the tax arbitrage between debt and equity tapering, investors are now evaluating asset allocation decisions based on overall post-tax returns rather than considering only the tax outflow.

 The cautious stance of FPIs also coincides with a more supportive global backdrop. Political developments in the United States have rejuvenated hopes to easing the aggressive trade measures, while expectations of lower global interest rates, strengthening of exchange rates and improved liquidity conditions have strengthened sentiment towards emerging markets, including India. This will positively impact the current trade restrictions and improve the Quarter 3 and 4 for the India business houses.

 The market witnessed yesterday highest single-day investment since October 2025 by the FPI community. Tax cuts may not be the only factor driving revival of the market sentiments and bring back the much-needed buoyancy. Other factors viz:  ease of doing business, post-tax corporate earnings, US position on trade policies by the new party, currency valuations, checks on rising inflations etc. will play a pivotal role in shaping the economy once again as a preferred jurisdiction.

 If the aforesaid proposal materialise, they could boost investor confidence, attract foreign capital, and reinforce India's position as a leading emerging market investment destination."

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