Government policies and tax reforms are making Indian equities a more attractive investment compared to other options, according to a JP Morgan equity research report. The report highlighted that policy and taxation changes have strengthened the case for equity investing even as market returns remained subdued over the past two years. As reported by JP Morgan, equity is now taxed at 12.5% LTCG, while the removal of indexation, taxation of insurance policy proceeds, and slab-rate taxation for debt mutual funds improves equity's relative appeal. The favourable policy environment has reinforced this structural trend by improving the attractiveness of equity investments relative to debt-oriented products and certain insurance investments.
While the Indian equity market navigates global headwinds and shifting foreign flows, JP Morgan believes investors can focus on large-cap stocks for steady earnings compounding. According to Sanjay Mookim, Head of India Equity Research at JP Morgan, given India's status as a duration asset with multi-year earnings growth potential, "investors can happily buy a bunch of 'largecaps' and wait patiently for earnings to compound." The market expert noted that mid-cap and small-cap companies act as a "beta" to overall economic growth, while large-cap banks and select blue-chip stocks remain the more confident bet for steady compounding until broader economic acceleration occurs. Indian equity valuations currently appear reasonable, especially when compared to global equities and other asset classes, according to the global brokerage.
Despite weak equity market returns and heavy selling by foreign portfolio investors over FY25 and FY26, domestic investors have continued to channel money into mutual funds through Systematic Investment Plans (SIPs), reflecting a long-term shift in household savings towards financial assets. According to JP Morgan, SIPs have emerged as the dominant source of equity fund inflows, helping cushion domestic markets against external volatility. The report noted that rising participation through SIPs is expected to continue supporting inflows into equity markets, with the global investment bank stating that the inflows should continue due to tax and policy changes.
Looking ahead, JP Morgan believes India's capital markets will continue to benefit from the ongoing financialisation of household savings, supported by policy measures and a steady rise in retail participation. However, the global investment bank cautioned that the investment thesis would weaken if monthly SIP inflows remain below ₹250 billion for a sustained period or if regulatory changes lead to a more than 20% decline in derivatives trading volumes. The market expert highlighted that while the Indian economy was in a cyclical uptick before the Middle Eastern conflict, driven by consumer stimulus and capital expenditure demand, another domestic variable looms: weather conditions and potential water shortages could impact the economy over time, especially if back-to-back El Nino events stress agricultural output.
