What is causing the Indian stock market decline- LTCG tax or global factors, clarifies economist

New Delhi: Economist and BJP national spokesperson Sanju Verma has clarified that the recent decline in the Indian stock market is not due to the Long-Term Capital Gains (LTCG) tax, but rather the result of global instability.

In an interview with IANS on Wednesday, Verma responded to fund manager Samir Arora’s suggestion that the downturn was linked to the LTCG tax, stating that the market's decline was driven by external global factors, not domestic tax policies.

"This is not true. The Indian market is falling due to global factors," Verma asserted, adding that the 12.5 per cent LTCG tax would only come into effect in April 2026 and is non-discriminatory.

"The government has ensured that the LTCG tax rate remains uniform for retail investors, institutional investors, and foreign investors," she noted.

The debate surrounding the LTCG tax has intensified, with some market analysts attributing the current downturn to high LTCG rates and urging the government to reconsider the tax framework in order to mitigate its impact.

Verma highlighted that the market's decline is not unique to India, stating, "Stock markets in Shanghai, Hong Kong, Japan, and Singapore are also experiencing a downturn."

Stock market- up and down

Prior to this correction, the Indian stock market had seen a significant rally. The Nifty had surged past the 26,000 mark by September 2024, up sharply from 7,500 in March 2020. Similarly, the Sensex had jumped from 25,600 in March 2020 to 86,000 by September 2024.

"The rise in markets over the past four and a half years – 249 per cent for the Nifty and 235 per cent for the Sensex – was extraordinary, and such a correction was to be expected," she explained.

The total market capitalisation of all companies listed on the Bombay Stock Exchange (BSE) has decreased by Rs 95 lakh crore in recent months, but this should be viewed in context, Verma added.

"In 2013, the total market capitalisation of BSE-listed companies was Rs 93 lakh crore, which later increased to Rs 457 lakh crore," she said.

Verma also pointed to the rapid growth of mutual funds in the past decade. The Assets Under Management (AUM) of mutual funds in India rose from Rs 8 lakh crore in 2013 to Rs 69 lakh crore in November 2024.

IANS