10% LTCG no scarecrow for foreign capital: Goldman Sachs

NEW DELHI: The 10 per cent long-term capital gains tax (LTCG) on stock investment, as proposed in the Union Budget, is no dampener of more foreign capital flow into India, so believes Goldman Sachs.

In an exclusive interview with Tanvir Gill of ET Now, Katie Koch, Global Head - Client Portfolio Management & Business Strategy for Goldman Sachs Asset Management, said its clients are getting more and more positive on the Indian economy and such a tax may not sway their investment pattern.

LTCG not to sway sentiment


Goldman Sachs remains upbeat about policy and investment prospects in India, Koch said, adding that her company has met many top Indian Cabinet ministers to make sense of the policy.

"Zero is always better than 10 per cent," Koch went as much saying. However, the LTCG tax, the analyst maintained, is low, in line with other major markets that do not charge too much on investment profits.

"Our clients seek profit from Indian investments over the long term," she stated.

Credit Suisse, in a recent note, had pointed that India like most Asian countries had not imposed any LTCG tax on equities earlier even as tax rates in developed markets were as high as 25 per cent for certain income brackets.

According to BofAML, the LTCG tax would make equity taxation worse than the one on debt over a 3-year investment window as 20 per cent taxation is applicable on the latter but with inflation indexation.

It's correction, and not a bear market

Koch firmly believes that the global turmoil roiling equities is merely a correction and not a bear market. Policy tightening by central banks is a key risk for 2018, she pointed out.

Goldman Sachs, which has maintained overweight on India, is clear that the flash crash in the US market is not the same as Black Monday of October 1987.

Black Monday refers to a global equity selloff on October 19, 1987, when stock indices the world over bled in a very short timeframe.

"Bond yields have been rising due to falling unemployment and rising wages. And yes, the recent rebound in energy prices has also added fuel to the rising rates argument. But to argue that a secular bear market for bonds -- and by extension, equities -- is in place would be a bit of a stretch," DBS said in a note.

Bear markets historically do not happen without a recession, DBS held, adding that investors in the US were just taking profit off the table.