- India’s stock market is underperforming global markets, with foreign investor outflows adding pressure.
- Equity investors face 20% STCG and 12.5% LTCG, with a ₹1.25 lakh exemption.
- Crypto faces a 30% VDA tax and an eligible 1% TDS, creating different after-tax returns.
The Indian stock market is now struggling to keep pace with global markets. As investors start looking for possible reasons for this gap, factors like taxation, rupee weakness, valuations, earnings, oil prices, and foreign flows come into focus. This has led to a closer look at the costs investors face when putting money into Indian assets.
India’s Relative Market Performance Has Hit a New Low
In 2026, India’s stock market has been facing increasing pressure. As of September 10, the MSCI India Total Return Index was down 5.27% year-to-date in local currency terms. The MSCI World had gained around 12.6% through September 23. This highlights the difference between Indian and developed market performance.
Foreign investors have also been pulling money out of Indian equities. Reportedly, around ₹23,676 crore of Indian equities have been sold by foreign investors between September 1 and September 19. This is not a new trend as FPIs saw ₹11,045 crore outflows in July and ₹10,231 crore in August.
According to analysts, there are many possible reasons for this weakness. These factors include the weaker rupee, relatively high valuations, slower earnings growth, and the global shift toward AI and semiconductor-related markets. As noted by JPMorgan Asset Management, Indian equities have lagged despite a relatively strong macroeconomic backdrop. This shows that economic growth alone is not enough to guarantee strong returns in the stock market.
The Tax Explanation Is More Complicated Than the Viral Claim
Notably, many blame India’s taxation rules as the main reason for the weaker performance of the stock market. But it should be understood that taxes form only a part of the issue. Other factors like valuations, earnings, interest rates, the rupee, and market volatility should also be considered.
For listed equities, the current tax rate is 20% for short-term capital gains. At the same time, there is a 12.5% tax for long-term capital gains. Long-term gains on listed equity under Section 112A also have a ₹1.25 lakh annual exemption threshold. These rates can directly affect the final returns investors receive. But taxation alone cannot explain the stock market’s weakness.
India’s Capital-Gains Tax Creates a Different Return Equation
It is important to note that the return for stock investors is not about how the price increases. The final amount they receive also depends on the tax. Under the current rules, if an investor makes a ₹2 lakh qualifying long-term gain during a financial year, ₹1.25 lakh is exempt from tax. The remaining ₹75,000 is taxed at 12.5%, with a basic tax of ₹9,375 before applicable cess.
Crypto Makes the Comparison Even More Interesting
Interestingly, the difference becomes clear when crypto is considered. For crypto, India has a stricter tax policy. VDA profits are currently taxed at 30%. In addition, transactions also face a 1% TDS. When a crypto trader makes a ₹1 lakh taxable crypto profit, the basic tax would be ₹30,000, along with applicable surcharge and cess. In addition, the transaction will also be subject to the 1% TDS.
The Real Issue for Traders: After-Tax Risk-Adjusted Returns
The important issue is not the gain or tax; it is what the trader gets in hand finally. While calculating the final returns, the trader must consider gains, taxes, trading costs, and other risks. Even if a stock delivers a certain return, the investors receive only a lesser amount after paying capital-gains tax.
The same applies to crypto, where the tax rate is higher and thus significantly impacts the returns. But tax should not be considered the only factor that matters for final returns. Investors should also consider other transaction costs, including Securities Transaction Tax (STT), which can further affect the final cost of trading
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Indian traders are supposed to watch factors such as foreign investor flows, the rupee, interest rates, crude oil prices, and corporate earnings going forward. These factors could significantly influence the stock market. Any changes to the current tax policy will also be worth watching.
Disclaimer: The information presented in this article is for informational and educational purposes only. The article does not constitute financial advice or advice of any kind. Coin Edition is not responsible for any losses incurred as a result of the utilization of content, products, or services mentioned. Readers are advised to exercise caution before taking any action related to the company.
