Indian equity benchmarks traded on a flattish note on Wednesday, with the BSE Sensex trading 0.08% lower at 72,973 levels, while the NSE Nifty50 was trading 0.14% lower at 22,691 levels at last check, as reported by NDTV Profit. This comes after Tuesday's historic rally that saw the BSE Sensex climb 1,109.10 points, or 1.54%, to close at 73,033.78, while the NSE Nifty50 advanced 358.60 points, or 1.60%, to settle at 22,721.95. The previous session marked the largest single-day gain in over two months, driven by investor sentiment improving after Finance Minister Nirmala Sitharaman indicated openness to discussions on key market-related taxes, including long-term capital gains (LTCG) tax and securities transaction tax (STT). The Finance Minister said she would be keen to hear the views of market participants on LTCG tax and STT, describing such debates as healthy. Her comments triggered buying in blue-chip stocks, helping key indices close near the day's high levels.
The Nifty IT index extended gains, rising nearly 1% on Wednesday, continuing its strong performance from Tuesday's historic rally. As reported by The Financial Express, HCL Technologies led the pack with an 8.3% rise, followed by TCS (up 6.6%), Tech Mahindra (up 4.9%) and Infosys (up 4.4%). HCL Tech jumped 8.28% after the IT firm reported a 21.18% rise in consolidated net profit to ₹5,132 crore for the July-September quarter of FY27, helped by higher margins from its fast-growing advanced AI operations and a lower tax outgo. Tata Consultancy Services gained nearly 10% since announcing its second-quarter results three days ago. Tech Mahindra gained 4.90% and Infosys advanced 4.44%, making IT stocks the key drivers of the day's rally. Tata Elxsi rose more than 5% ahead of its second-quarter results. From the Sensex basket, HCL Technologies, Tata Consultancy Services, Shriram Finance, Infosys, Hindustan Aeronautics and Bajaj Finserv were among the major gainers. The Information Technology index gained 5.22% to 29,830.10, leading sectoral performance across all indices except Energy and pharma. According to Mint, the Nifty IT rose 5.2%, the biggest gain among NSE sectoral indices, while the Nifty Midsmall IT & Telecom index climbed 2.8% and the Nifty Realty index rose 2.5%.
Market breadth turned positive for the third consecutive session, with 2,518 gainers against 1,834 losers on the BSE, as reported by The Financial Express. Foreign portfolio investors sold shares worth ₹1,305.13 crore, while domestic institutional investors purchased shares worth ₹2,439.24 crore, according to provisional data released by the exchanges. Investors' wealth increased by ₹4.62 lakh crore, of which major IT companies contributed ₹1.29 lakh crore to the total market capitalisation. The total market capitalisation on the BSE stood at ₹470.08 lakh crore. Among sectoral indices, IT led the gains, followed by realty, consumer durables, financial services and PSU banks, while Pharma was the only sector to end in negative territory, recording a modest decline. Vinod Nair, Head of Research at Geojit Investments Limited, noted that "Indian equities advanced as stronger-than-expected technology earnings boosted confidence in corporate profit growth and lifted benchmark-heavy large-cap stocks. Rupee stability and easing bond yields further supported sentiment, bringing financial stocks into focus." Sunny Agrawal, head of fundamental research at SBI Capital Securities, noted that "The rally was (led by) expiry-related short covering." According to Mint, Foreign investors have continued to sell Indian equities, with FPIs withdrawing ₹36,184.15 crore from Indian shares in October so far, while DIIs bought ₹40,355.32 crore. Except for February, July and August, foreign investors have largely been net sellers this year, with domestic institutions providing a counterweight.
Finance Minister Nirmala Sitharaman on Tuesday signalled the government's willingness to engage in discussions on key market-related taxes ahead of the Union Budget 2024-25. Speaking at the Bloomberg New Economy Forum 2026, she said the government was open to deliberations on long-term capital gains (LTCG) tax and securities transaction tax (STT), stating that "it's healthy to have this debate, and I will be keenly hearing them." As per The Times of India, the minister declined to be specific on the matter as preparations for the Union Budget in February are already underway. Indian and foreign investors had raised questions about long-term capital gains tax, the securities transaction tax and whether different asset classes should be taxed on a similar footing. The minister acknowledged that capital gains tax has become an "elastic source" of revenue, with collections growing faster than national income, salaries and business income. Revenue from capital gains tax rose from a little over ₹26,000 crore to ₹1.29 lakh crore in FY25, while annualised collections are currently estimated to exceed ₹1.5 lakh crore. Sitharaman explained the rationale behind earlier changes, saying "Two years ago, we had brought all asset classes similarly and people thought I'm increasing the tax. I wasn't increasing the tax; I was bringing all of them to be at par with one another so that an investor is not speculating as to which one gives them greater leverage." Veteran investor Manishi Raychaudhuri has said scrapping the long-term capital gains (LTCG) tax could increase market returns by 12 per cent, as reported by ET Now. However, abolishing or reducing LTCG tax on equities would be a difficult decision for the government, as capital gains have been among the fastest-growing sources of tax revenue in recent years. Experts and investors have been advocating for the removal of LTCG ever since it was reintroduced in 2018, but at the current juncture, the government appears unwilling to make any changes to it. Earlier in July this year, Union minister Pankaj Chaudhary told the Lok Sabha that the government was not considering any proposal to scrap LTCG tax for domestic or retail investors.
Market veterans and experts have provided insights on potential LTCG tax reforms following the Finance Minister's recent comments. Shankar Sharma, founder of GQuant Investech, believes the Finance Minister might reduce LTCG tax for overseas investors rather than removing it entirely. "I don't think the Finance Minister will remove the capital gains tax, but she might reduce it for overseas investors. Long-term capital gains tax is the pimple, not the tumour. The real reason for the underperformance of the Indian market has been companies which are inward-focused and have no technology." Sharma advocates for differential taxation similar to the 1990s, where foreign investors should have low or no tax on equity investment, while domestic investors should have a tax simply because India needs foreign capital permanently to fund current account deficits. Rohit Srivastava, founder and market strategist at Indiacharts.com, suggests a phased approach to tax reduction. "If the government is concerned about the revenue implications or the potential market impact, it could reduce the tax in stages - for example, from 12.5% to 5%, and eventually to zero. Several countries have lower capital gains tax rates, including rates of around 5%." Srivastava notes that removing LTCG tax for both domestic and foreign investors would be a double win, as domestic investors would have greater incentive to invest for the long term without worrying about capital gains tax. He adds that removing the tax for foreign investors could encourage them to book profits and exit the market, but foreign investors would sell anyway if they believed the Indian market was a poor investment. According to Investing.com India, Finance Minister Sitharaman clearly indicated the rejig of both LTCGT and STT in the forthcoming Federal Budget for FY28, to be presented early February 27. India may be the most expensive capital market among G20 peers in terms of various taxes & cess/surcharges, with the total cost stack comprising transactional friction, service taxes, regulatory fees, and direct performance taxes reaching 1.00-1.25%.
