CLSA cuts India weight, says LTCG to damage domestic equity culture

NEW DELHI: Christopher Wood, Managing Director and Equity Strategist at CLSA, on Friday said India's decision to levy 10 per cent tax on long-term capital gains in equity was 'unfortunate' and it made CLSA reduce its overweight stance on India in the Asia Pacific (ex-Japan) relative-return portfolio by 2 percentage points.

The author of the Greed & Fear Report said the development was 'negative' as India’s equity culture was being promoted by salaried workers in recent years, who were signing up to equity-linked tax-savings schemes.

The risk, Wood says, would be a slowdown in inflows into equity mutual funds for more than just one month.

Data suggests foreign portfolio investors (FPIs) have pulled Rs 2,393.17 crore worth of equities out of India this month.Investors pumped over Rs 1 lakh crore into mutual funds in January, driving the industry assets base to an all-time high of Rs 22.41 lakh crore, latest update with mutual fund lobby Amfi showed.

Wood's view differed from that of Katie Koch, Global Head - Client Portfolio Management & Business Strategy at Goldman Sachs Asset Management, who in an exclusive interview with ET Now said on Thursday that her clients were getting more and more positive on the Indian economy and the LTCG tax might not sway their investment pattern.

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

CLSA’s Wood said investors should be prepared for a much higher oil price. “It is also an argument for global emerging market investors who want to remain structurally overweight on India, as they should do, to have a significant overweight in Russia as a hedge,” Wood said.