FPIs pull out ₹3.51 lakh crore since 2021; SBI Research seeks LTCG tax relief to attract flows

The foreign portfolio investors outflows have surge to ₹3.51 lakh crore since 2021 and that has prompted the research team of the country’s top lender State Bank of India to seek relief on capital gains tax from the government.

In order to attract hot money towards Indian equities, the government should look at abolishing the long term Capital Gains (LTCG) tax on holding period of 2-3 years, the research team of country's biggest lender State Bank of India said in its report ECOWRAP.

Currently government imposes 12.5% LTCG tax on gains exceeding ₹1.25 lakh crore for a period exceeding one year while short terms capital gains are taxed at 20%.

"The Government must seriously look into anchoring hot money flows into equity segment by extending the holding period to say 2-3 years and abolishing the long term capital gains tax for equity," SBI Research team headed by Soumya Kanti Ghosh, group chief economic adviser said.

Hot money refers to short-term, speculative capital FPI investment that flows rapidly into and out of Indian equities and bonds to chase quick profits, analysts said.

SBI Research noted that in the backdrop of persistent selling by foreign investors and to attract hot money towards equities sweeteners on taxation and cap gains front needs to be provided.

"Basis figures in public domain, the outflows by FPIs in equity segment has been a whopping ₹3.51 lakh crore (2021-till Sep’26), 2023 being the only outlier in a sombre environment with outflows in excess of ₹2.61 lakh crore in 2026 alone, over and above ₹1.66 lakh crore in 2025, implying complete detachment from portfolio investment enablers. Also, a good amount of flows has come not in secondary market activities but in primary market offerings," SBI Research said.

"The alarming situation definitely calls for suitable measures to anchor flows of Hot Money in the equity segment ($13 bn outflows in FY27) through both alignment with themes driving allocation as also sweeteners on taxation / cap gains front," research team of country's top lender added.

SBI Research highlighted that low taxation for such investors for a period of say three years can accentuate incremental flows as India play remains structurally attractive and marquee names locally promise lucrative returns in a competitive market.