Nilesh Shah of Kotak Says Easing Tax Burden May Help Attract Foreign Flows, but Won’t Be Enough

Nilesh Shah of Kotak Mahindra AMC said on 16 Oct 2026 that lowering the tax load from STT and long-term capital gains tax could help attract foreign flows, but that it will not be enough on its own. FPIs have sold a record Rs 3.08 lakh crore of Indian equities in 2026 against Rs 1.66 lakh crore in all of 2025. He also named consumption and banking and financial services as sectors to watch. Educational only.

Nilesh Shah is the Managing Director of Kotak Mahindra Asset Management Company and one of the most quoted voices in Indian markets. His comments come as foreign portfolio investors (FPIs) sell heavily and the Sensex and Nifty are both down in 2026.

This guide covers what Nilesh Shah said about taxes and foreign flows, why he thinks a tax cut will not be enough, the FPI data, the views of other market experts and the risks. It is educational and not a recommendation to buy or sell.

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What Nilesh Shah Said About the Tax Burden

Point	Nilesh Shah’s view (16 Oct 2026)
The ask	Reduce the tax load from Securities Transaction Tax (STT) and long-term capital gains (LTCG) tax
Why it matters	He calls it a double tax burden that discourages foreign institutional investors, since many cannot claim credit for Indian taxes at home
Background	STT was introduced in 2004 as a substitute for capital gains tax, but both taxes still apply
Government stance	The Finance Minister has reportedly acknowledged the concern, but no change is confirmed before the next Union Budget

Nilesh Shah argues that the cumulative tax cost makes India less attractive than other markets for foreign money. The report I read on his comments gave no specific tax rates and did not quote him on how much relief is needed.

The tax rates reported in March 2025 after Budget 2024 were 20% on short-term gains, 12.5% on long-term gains above a Rs 1.25 lakh exemption, and 0.02% STT on futures and 0.1% on options. Check current rates before relying on them.

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Why Nilesh Shah Says Tax Relief Won’t Be Enough

Factor	What it does to foreign flows	Source
High US interest rates	US 10-year yield recently crossed 5.2%, which makes dollar debt more attractive	FPI reports, 12 to 13 Oct 2026
Money moving to AI	Global capital is chasing AI-related stocks, away from emerging markets	Nilesh Shah, 16 Oct 2026
Crude oil and the rupee	Brent has tested $100 amid the West Asia war and a weaker rupee cuts dollar returns	FPI reports, 12 to 13 Oct 2026
Valuations	Indian valuations remain high relative to earnings growth	FPI reports, 12 to 13 Oct 2026

The headline says Nilesh Shah sees a tax cut as not enough. The report I read does not spell out that argument, but Nilesh Shah made it directly in March 2025. He said then that lower taxes raise post-tax returns but that only a reduction in taxes does not guarantee returns, and suggested other steps such as IPO and OFS quotas for FPIs at a discount and exemptions from KYC and ITR filing.

In his latest comments, Nilesh Shah described the selling as a strategic reallocation of funds, which suggests flows can return when relative returns improve.

Risk: A tax cut alone may not reverse selling if US yields, oil prices and the rupee keep working against Indian assets.

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FPI Flows in 2026: The Backdrop to the Nilesh Shah Comments

Item	Figure	Note
FPI net selling of Indian equities in 2026	Rs 3.08 lakh crore ($32.73 billion)	A record; first nine months, NSDL data
Total for 2025	Rs 1.66 lakh crore	2026 is about 1.86 times that (my calculation)
September 2026	Rs 35,861 crore	Net selling
1 to 12 October 2026	Rs 47,417 crore	Earlier reports gave Rs 44,166 crore for a shorter period
Net buying in the primary market	Rs 56,485 crore	Through 12 Oct 2026
Domestic institutions (DIIs) in 2026	Rs 6.83 lakh crore net buying	Against Rs 7.88 lakh crore in 2025
Sensex and Nifty 50 in 2026	Down 15.6% and 14.4%	Per Angel One

Gross secondary market sales were Rs 3.64 lakh crore through 12 October, a different measure from the Rs 3.08 lakh crore net figure, so the numbers do not reconcile directly. Domestic institutions have absorbed much of the selling, buying Rs 6.83 lakh crore, about 2.2 times the FPI outflow (my calculation).

Risk: Flow numbers change daily, so check the latest NSDL data.

What Other Experts Say Beyond Nilesh Shah

Expert (March 2025)	View
Samir Arora, Helios Capital	Argued for abolishing capital gains tax for foreign investors and said 199 of 200 countries do not tax them (his claim)
Jitendra Gohil, Kotak Alternate Asset Managers	Said the sell-off came from high valuations, a stronger dollar and slow reforms, not tax
Vaibhav Sanghavi, ASK Hedge Solutions	Said cutting LTCG for foreign investors would make India more attractive
Nilesh Shah, Kotak Mahindra AMC	Said lower tax lifts post-tax returns but does not guarantee returns

The opinions are split, and the March 2025 statements are older than the latest comments. Even the experts who want tax relief agree it works best alongside earnings growth and policy reform.

Where Nilesh Shah Sees Opportunity

Area	Reason given
Consumption	Discretionary spending and the coming pay commission recommendations
Banking and financial services	Robust credit growth and historically low NPAs
Large and mid-cap stocks	Valuations about 30% below the September 2024 peaks, back to more reasonable levels

Nilesh Shah also said macro worries such as oil prices and interest rates are already reflected in valuations and that corporate earnings remain resilient. These are opinions and not recommendations, and any decision should fit your own time frame and risk limit.

What to Watch Next

1. Any tax announcement in the next Union Budget, including STT and LTCG
2. Daily and monthly FPI data from NSDL
3. US 10-year yields and Brent crude
4. The rupee against the dollar
5. Q2 earnings for signs of growth that supports valuations

Conclusion

Nilesh Shah believes easing the tax burden can help attract foreign flows, but he sees US rates, AI flows and valuations as bigger drivers. With FPIs selling a record amount in 2026, treat any tax relief as one factor and keep your own risk limits.

Frequently Asked Questions

What did Nilesh Shah say about foreign flows?

Ans. Nilesh Shah said on 16 October 2026 that lowering the tax burden from STT and LTCG could help attract foreign flows, but it will not be enough on its own.

Why does Nilesh Shah say a tax cut is not enough?

Ans. He links the selling to high US interest rates and the shift of money to AI, and in March 2025 he said lower tax alone does not guarantee returns.

How much have FPIs sold in 2026?

Ans. A record Rs 3.08 lakh crore of Indian equities in the first nine months, nearly double the Rs 1.66 lakh crore sold in 2025.

What taxes do foreign investors pay in India?

Ans. STT and capital gains tax. In March 2025, the reported rates were 20% on short-term gains and 12.5% on long-term gains above Rs 1.25 lakh. Check current rates.

Which sectors does Nilesh Shah favour?

Ans. He pointed to consumption and to banking and financial services, citing strong credit growth and low NPAs.

Has the government agreed to cut the tax?

Ans. The Finance Minister has reportedly acknowledged the concern, but no change has been confirmed before the next Union Budget.

What are the risks for foreign flows?

Ans. High US yields, expensive valuations, crude oil near $100 and a weaker rupee.

Is this article investment advice?

Ans. No. It is educational and not a recommendation to buy or sell.