LTCG Tax Not A Deterrent, Will Live With It, Dalal Street Veterans Say  

Market experts believe introduction of long-term capital gains tax will not dent the investor sentiment.

Indian five hundred rupee banknotes are arranged for a photograph in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)
Indian five hundred rupee banknotes are arranged for a photograph in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

The long-term capital gains tax proposed by the government was along expected lines and won’t alter the view on Indian equities materially.

That’s the view of most market participants BloombergQuint spoke with. The finance minister in Union Budget 2018 proposed to reintroduce a 10 percent tax on long term capital gains in excess of Rs 1 lakh. However, all gains up to Jan. 31, 2018 will be grandfathered, said the finance minister.

Returns from the stock market are quite attracting and it was time to bring them under the ambit of capital gains tax, Jaitley said. The finance minister added that the change is only a “modest one” given that a vibrant equity market is essential for economic growth.

‘Markets Will Live With LTCG’

To some extent, the tax on long-term investments was expected, said Nilesh Shah, managing director and chief executive officer Envision Capital. The market did see a knee-jerk reaction but “I don't think it is going to change the course of the market,” he added.

It is an event, which has come and gone, and market will begin to start living with this new reality.
Nilesh Shah, MD & CEO, Envision Capital

‘Not A Big Deal’

There are many countries, developing and developed, who have had very successful capital gains regimes with significant degree of compliances with much higher rates, said Taimur Baig, MD and chief economist at DBS Group Research.

By international standards, a 10 percent LTCG is not prohibitive, he told BloombergQuint in an interview.

India at 10 percent with all grandfathering will only be a medium-term negative for the market. The market will live with it. It will not be a big deal at all.
Taimur Baig, MD & Chief Economist, DBS Group Research

‘Equities Will Remain Attractive’

Market veteran Madhusudan Kela does not expect money to move out of equity markets into other asset classes as a result of the tax. Stocks will continue to remain attractive, he added.

Considering you make 16-17 percent return on equity in longer term and 10 percent goes away as tax you will still be left with 14-15 percent return which is far better than what you get in gold, debt or real estate.
Market veteran Madhusudan Kela

Manish Chokhani, director Enam Holdings agrees. He remains fully invested in Indian equities, calling them “the best asset class in the country”.

“The reality is that if your company is going to perform and your company’s stock is going to go up, would you not buy it because you will have to pay a tax at the end? I don’t think that’s the answer. So for Indian investors I don’t think we have a choice. You pay and live with it and it is the right of the government to ask whatever it wants from the citizen to pay tax.”

Watch Chokhani’s Interview Below

‘Little Incremental Impact’

According to S Naganath, president and chief investment officer at Franklin Templeton Alternatives, the tax rate is modest and will therefore not have much incremental impact “other than the minor blip that we have seen today”.

There is clarity on long term capital gains tax at 10 percent, it is a modest tax rate and it should not have any significant impact on stock markets.
S Naganath, president and CIO at Franklin Templeton Alternatives

Today’s budget was a growth and consumption-oriented Budget. Apart from focus on rural the government has also focused on MSMEs as well. However, divestment target of Rs 80,000 crore is much lower but the government will achieve much higher proceeds from divestment, said Rashesh Shah, FICCI president and CEO of Edelweiss.