Vallabh Bhanshali, Co-Founder of Enam Group, said India should review capital gains taxation for foreign institutional investors (FIIs) as part of efforts to strengthen its capital markets.
“I think it should never have been there. And if there is no one in the world taxing FIIs the way we are doing, why should we have been doing it?” he said, adding that India should also review other policies affecting foreign investors.
However, he cautioned that a tax change alone may not bring back foreign investors. “There is no guarantee that FIIs will come back because it’s a function of what other markets are doing, where our valuations are, and how strongly they see a trend,” he said.
Foreign portfolio investors (FPIs) have sold about ₹3 lakh crore worth of Indian equities so far in 2026, according to reports. Finance Minister Nirmala Sitharaman, speaking at an event earlier this week, said, “It is healthy to have a debate on taxation…I am keen to hear the views on LTCG and STT.” Her comments fuelled speculation about possible changes to capital gains tax and the Securities Transaction Tax (STT) in the upcoming Budget.
Currently, the long-term capital gains on listed equity shares and equity-oriented mutual funds is at 12.5% on gains exceeding.₹1.25 lakh in a financial year.
Bhanshali believes India has an opportunity to become one of the world’s leading capital markets, supported by a growing domestic investor base, strong mutual fund participation and ongoing market reforms. He said policymakers should ensure that India’s regulatory framework remains globally competitive to attract more foreign listings and investments.
He remains positive on the broader market despite recent volatility, forecasting corporate earnings to grow 20-25% year-on-year, supported by a sustained capital expenditure cycle, manufacturing expansion and defence investments. Lower oil prices could further improve India’s macroeconomic outlook.
“The capex cycle has seriously started,” he said, adding that rising capacity utilisation and new manufacturing supply chains are creating a strong foundation for long-term earnings growth.
Bhanshali also praised the evolution of India’s IPO market, crediting regulatory reforms, dematerialisation and growing retail participation for improving market depth. However, he suggested the government consider safeguards for foreign companies raising money in India, arguing that capital raised locally should largely be deployed within the country.
He added that India’s capital markets have the potential to become among the world’s largest if reforms continue and the policy environment remains supportive for both domestic and foreign investors.
For the full interview, watch the accompanying video
LTCG tax on FIIs should never have been imposed, says Enam Group’s Vallabh Bhanshali
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