'Biggest mistake': Helios Capital's Samir Arora slams India's capital gains tax, warns of investor exodus

The Indian government’s decision to impose capital gains tax on investors, particularly foreign institutional investors (FIIs), is a "biggest mistake," according to Samir Arora, founder and chief investment officer of Helios Capital. Speaking at the Business Standard Manthan Summit 2025, Arora warned that the policy is damaging investor sentiment and driving large-scale sell-offs in the Indian equity market.

“The biggest mistake they (the government) have made, the biggest souring of sentiment, and reality which they have to accept is capital gains tax in India, particularly the foreign investors, is 100 per cent wrong,” Arora said.

He pointed out that FIIs have been offloading Indian equities for five consecutive months, with sales crossing ₹1 trillion in just the last two months. "The largest investors in the world and in India are Foreign Sovereign Funds, Pension Funds, Universities, and the High Net Worth Individuals (HNIs). Taxing them on their gains, especially when they have no tax set-off available in their home country and when they face forex-related risks, is a big mistake that the government is making," he added.

Finance Minister Nirmala Sitharaman’s Union Budget 2024-25 raised long-term capital gains (LTCG) tax from 10% to 12.5% on all financial and non-financial assets. Short-term capital gains (STCG) tax on certain financial securities was also hiked from 15% to 20%. "Listed financial assets held for more than a year will be classified as long-term, while unlisted financial assets, held for more than two years, will be classified as long-term asset," Sitharaman stated in Parliament on July 23, 2024.

The impact of these tax hikes has been felt across the stock market. On Friday, the Sensex plummeted 1,414 points (1.9%) to 73,198, while the NSE Nifty slipped 420 points (1.86%) to 22,124. The sharp decline erased ₹9 lakh crore in investor wealth, bringing the total market capitalization of BSE-listed firms down to ₹3,84,01,411 crore.

Arora, a veteran investor with over three decades of market experience, noted that India collected around $10-11 billion in capital gains tax in FY23. However, he argued that the long-term damage of discouraging foreign investment outweighs the revenue gains. “India, however, should waive the capital gains tax to respect the markets and foreign investors,” he said.