Aditya Shah FPI LTCG Outflows: Aditya Shah, CEO of Investec India, has made a significant call: completely remove Long Term Capital Gains (LTCG) tax for foreign portfolio investors (FPIs). This comes as Indian markets witness substantial FPI outflows in May 2026, raising concerns about foreign investment sentiment.

Aditya Shah FPI LTCG Outflows: Investec India CEO Demands Tax Removal as Rs 2.27 Lakh Crore Exodus Shakes Indian Markets

Quick Highlights: What Happened on May 26, 2026

• FPI Outflows: Foreign Portfolio Investors have been net sellers, with outflows of approximately Rs 8,500 crore in May 2026 (up to May 24, 2026).
• LTCG Tax: Currently, FPIs pay 10% LTCG tax on listed equities held for over 12 months.
• Market Performance: The Nifty 50 closed at 22,500.50 on May 26, 2026, down 0.45% from its previous close.
• Shah’s Rationale: He argues that removing this tax would make India more competitive for global capital.
• Historical Context: India reinstated LTCG on equities in 2018, impacting FPIs.

Key Market Data — May 26, 2026

Why It Happened: The Real Story Behind May 26, 2026’s Move

Aditya Shah’s call for removing LTCG for FPIs isn’t just a theoretical debate; it directly addresses the ongoing FPI outflows that are currently weighing on Indian markets. Other reports have highlighted the outflows, but Shah explains why the tax structure itself is a key factor.

1. Persistent FPI Outflows Impact Sentiment?

FPIs have been net sellers in Indian equities, pulling out approximately Rs 8,500 crore in May 2026 alone (up to May 24). This consistent selling pressure has contributed to the Nifty 50’s slight decline today, closing down 0.45% at Rs 22,500.50. This means foreign investors are actively reducing their exposure.

2. The LTCG Tax Disadvantage?

Currently, FPIs face a 10% LTCG tax on equity gains if they hold shares for over 12 months, without the benefit of indexation. In contrast, many other emerging markets offer more favourable tax regimes, sometimes even zero capital gains tax for foreign investors. This makes India a less attractive destination for global capital, as Shah points out.

3. Global Capital Competition and Macro Factors?

Beyond domestic tax policies, global factors also influence FPI flows. Higher interest rates in developed economies, particularly the US, often draw capital away from emerging markets like India. This is why a more competitive tax structure, like the removal of LTCG, could help offset these global pulls and attract more FPI money.

The Broader Picture: What This Means for Indian Markets

The debate around LTCG for FPIs is crucial for India’s long-term growth story. When FPIs pull out funds, it can create volatility, especially in specific sectors where they have significant holdings. For example, sectors like financials and IT, which typically see high FPI interest, could experience more pressure during periods of outflows.

Moreover, sustained FPI selling can impact the broader market sentiment. While domestic institutional investors (DIIs) have often cushioned the impact of FPI outflows, a significant and prolonged withdrawal of foreign capital could still lead to market corrections. The current FPI outflows highlight the need to address factors that might deter foreign investment.

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What the Data Shows for Investors

The data clearly shows a trend of FPI net selling in May 2026. This pattern suggests that foreign investors are re-evaluating their positions in Indian equities. The Nifty 50’s performance today, closing slightly lower, reflects this cautious sentiment.

NSE figures indicate that while overall market volumes remain robust, the direction of FPI flows is a key determinant of short-to-medium term market movements. This is why discussions around tax policies, like LTCG, become particularly relevant. The data underscores the importance of a stable and attractive regulatory environment to draw and retain foreign capital.

Frequently Asked Questions

1. What is Long Term Capital Gains (LTCG) tax for FPIs?

LTCG tax for FPIs is a 10% tax on profits made from selling listed Indian equities held for more than 12 months. This tax does not include indexation benefits.

2. Why is Aditya Shah calling for its removal now?

Aditya Shah’s call comes amid significant FPI outflows from Indian markets in May 2026. He believes removing LTCG would enhance India’s appeal to foreign investors, making it more competitive globally.

3. Has India ever removed LTCG for FPIs before?

While the specific rates and exemptions have changed over time, India reinstated LTCG on equities in 2018. Before that, equity gains were exempt from LTCG for a period, which attracted significant foreign investment.

4. How does LTCG for FPIs differ from domestic investors?

For domestic investors, LTCG on listed equities above Rs 1 lakh is also taxed at 10% without indexation. However, FPIs operate under specific tax treaties and regulations that can differ in application. Consult a tax advisor for your specific situation.

The Bottom Line

Aditya Shah’s proposal to remove LTCG for foreign investors directly addresses the current FPI outflows and the need to make India a more attractive investment destination. The data shows significant FPI selling in May 2026, underscoring the urgency of this discussion. This means that policymakers are likely to face increasing pressure to review tax structures that impact foreign capital flows.

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