LTCG tax relief changes market mood, foreign investors buy shares worth Rs 6837 crore in single day

LTCG Tax News: Foreign portfolio investors (FPIs) have been steadily withdrawing their money from the Indian stock market for the past few months. To stem this massive sell-off, market experts have long been demanding a reduction or complete abolition of long-term capital gains (LTCG) tax. Now it seems that the softening of the government’s stance has started to regain the confidence of foreign investors. Finance Minister Nirmala Sitharaman recently made a statement that she would consider investors’ concerns regarding equity tax.

According to a Reuters report, market regulator Sebi has also recommended the government to scrap the LTCG tax imposed on foreign investors. Apart from this, SEBI has also proposed to provide relief to domestic mutual fund investors. Under the proposal, if investors sell their old mutual funds and invest the money in new schemes, they should be exempted from this tax. However, SEBI has not yet made any official statement on this report. After all these signs, on Tuesday, November 3, Foreign Institutional Investors (FIIs) made a strong comeback in the Indian market. He bought shares worth Rs 6,836.81 crore in a single day. This is his biggest one-day purchase so far in the year 2026.

In two days Rs. 9,952 crore investment, surge in stock market

Foreign investors have opened their treasuries in anticipation of the tax changes. According to exchange data, foreign investors on Tuesday invested a total of Rs. 20,970.51 crore shares were bought, while Rs. 14,133.70 crore worth of shares were sold. Earlier on September 2 Rs. 6,688.37 crore was the record net investment, which has now been broken. On Monday also in the market Rs. 3,114.68 crore was the net investment. That is, in the first two trading sessions of the week itself, the total net investment of FIIs was Rs. 9,952 crores has reached around.

On the back of this strong buying, the Nifty closed higher for the fourth consecutive trading session along with the Sensex. The Sensex rose 1,225 points to 76,918 on Tuesday. While the Nifty rose 370 points to close at 23,811. The Nifty has gained nearly 5 percent in the last four sessions, its biggest four-day gain in seven months. In this boom, the FMCG sector saw a growth of 3 percent. Marico shares jumped 9 percent after raising FY27 guidance on strong second-quarter results. Apart from this, shares of MCX have increased by 8 percent, Lodha Developers by 6 percent and shares of BSE by 5 percent.

Why were foreign investors withdrawing money from the market?

The picture before this latest purchase was quite alarming. Between April 1 and November 2, 2026, foreign investors can buy from the domestic market up to Rs. More than 1.59 lakh crore shares were sold. Earlier, it had in FY 2026 raised around Rs. 1.81 lakh crore and in FY 2025 Rs. 1.27 lakh crore was sold. This money was flowing out due to war in West Asia, expensive crude oil and good opportunities related to AI in other countries.

Due to this selling, the rupee fell to a low of 96.96 against the dollar in May. The rupee recovered to around 94.90 on November 2 after the RBI opened a swap window for banks for FCNR (B) deposits, as well as a separate dollar window for three state-owned oil companies. Geojit Investments’ V.K. According to Vijayakumar, foreign sales weaken the rupee, which in turn increases imported inflation. Food inflation is already scaring due to bad monsoon this year, so LTCG tax should be abolished for domestic investors along with foreign investors.

Taxes are higher in India compared to other Asian markets

According to Venkatesh Balasubramaniam of JM Financial, there is no capital gains tax on listed shares in Taiwan, Singapore and Hong Kong. China has a temporary exemption, while Indonesia only charges a 0.1 percent transaction tax. Even in Korea, this tax is not levied on investors holding less than 25 percent.

According to JM Financial, in 28 out of 201 months (14 of the time), the Nifty’s 12-month return was positive against the rupee, but zero or negative against the dollar. Except for 201214, 201819, 202223, this happened in February 2025. That is, due to the weakness of the rupee, the foreign investor has to pay tax in India, even if he incurs a loss in dollars. Removal of LTCG tax will increase their annual dollar returns by about 2.2 percent. Nirav Karkera, head of research at W Buy Grow, says that by lowering taxes, India will be able to compete with other markets, but it is also necessary to increase corporate earnings to retain foreign currency.

How will the government compensate for the loss if the tax is waived?

Abhinav Sinha, an analyst at Jefferies, said foreign investment in June-July 2026 was $9 billion after the tax break in government bonds (G-Secs). Even in the stock market, such relief can be given before the budget through an ordinance. According to the SBI report, the government may face a loss of Rs 50,000 crore in Budget 2027.

Jefferies estimates that the government in FY 2025 will collect Rs. 1.3 lakh crore could have been collected. The share of STT along with LTCG in direct tax was 8 percent. Vijayakumar believes that the GST collection has increased by 23 percent in October 2026, which shows the strong position of the government. The government may increase the STT slightly to meet the shortfall. At the same time, Balasubramaniam has suggested that instead of doing away with the tax altogether, the actual profits of foreign investors should be taxed in dollars, which would not burden the government exchequer.