A recent report by JP Morgan has pointed out that various tax and policy changes in India have made equity investments more attractive. Despite lower returns in the past two years, these measures have boosted domestic inflows into the stock market. The report highlights alterations in the taxation of long-term capital gains, debt mutual funds, and insurance products, making equities more appealing.
JP Morgan emphasized that equities now face a 12.5% long-term capital gains tax, with policy adjustments favoring equity investments over other financial assets. The removal of indexation benefits, changes in taxation for certain insurance policies, and slab-rate taxation for debt mutual funds have shifted the risk-reward balance in favor of equities. The report also noted the increasing participation in Systematic Investment Plans (SIPs) as a contributing factor to the steady flow of domestic funds into the equity market.
The report underlined the resilience of domestic investors, who continued investing in Indian equities through SIPs even as foreign portfolio investors reduced their exposure. Despite modest benchmark returns, retail investors displayed a structural change in investment behavior, focusing on long-term strategies rather than short-term market fluctuations. JP Morgan highlighted that consistent domestic investor participation has played a crucial role in stabilizing Indian equities amidst foreign fund outflows and global market uncertainties.
In a separate analysis, JPMorgan expressed caution regarding India’s information technology sector, predicting a prolonged period of subdued growth. Factors such as artificial intelligence disruptions and geopolitical uncertainties are expected to impact demand in the industry. The report mentioned that the IT sector faces challenges from a mix of technological advancements and business cycle pressures, delaying a significant growth recovery as companies reassess their spending priorities.
