The Recovery Trigger
According to a Bloomberg report, India is considering a significant reduction in the taxes paid by foreign investors on the country’s bonds, in order to attract more inflows, citing sources with knowledge of the matter.
The move, according to the report, was recommended by the Reserve Bank of India, and is being considered seriously by the country’s Finance Ministry.
Steps are being considered to quell the plunge in the currency, which is now Asia’s worst performer so far in 2026 with a depreciation of over 6% against the US Dollar.
Current Tax Structure
Currently, overseas buyers have to pay both short-term and long-term capital gains taxes, depending on their jurisdiction.
Interest income on coupon payments is taxed at around 20%. Foreign investors used to pay just a 5% tax on interest earned, but that dispensation ended in 2023.
The Market Reaction
Within minutes of the report, the rupee, which was threatening to break levels of 96, having tested levels of 95.96, recovered over 20 paise from the lows of the day, to levels of 95.75. India’s 10-year bond yield fell to 7.02% from 7.06% earlier.
The Nifty also surged over 300 points in 60 minutes, to cross the mark of 23,700 intraday, well before the report was released. The index has now extended its gains.
Leading the recovery have been the banking stocks, with HDFC Bank being the top contributor to the market recovery.
Surge has also been seen in PSU Banks led by Bank of Baroda, Indian Bank and Bank of India.
