Foreign Institutional Investors May Re-enter Indian Markets as Valuations Ease, Tax Considerations Crucial for Significant Inflows
Foreign Investors May Return to Indian Equities
Mumbai: As valuations in the broader Indian market turn more reasonable and earnings growth stabilizes, foreign investors may start to return to Indian equities. However, a sustained surge in inflows will likely depend on the easing of capital gains tax rules for foreign institutional investors (FIIs), according to Dinshaw Irani, managing director and chief executive officer at Helios Capital Asset Management (India) Pvt. Ltd.
The Indian market has been witnessing a decline in foreign investment in recent times. However, experts believe that with the market valuations becoming more reasonable, foreign investors may start to take notice. Dinshaw Irani's comments highlight the importance of easing capital gains tax rules for FIIs in order to attract sustained foreign investment.
Comparison of Indian Market Valuations
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| Quarter | Market Valuation (x) |
|---|---|
| Q4 2022 | 18.5 |
| Q1 2023 | 16.2 |
| Q2 2023 | 14.8 |
Note: Market valuation is calculated based on the price-to-earnings ratio of the Indian market.
Investor Takeaway
Investors should monitor tax considerations for foreign institutional investors to gauge potential inflows into Indian markets.
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