Tax and policy changes are making equities more attractive, says JP Morgan

Dalal Street has delivered muted returns over the past two years, but policy is keeping them in the spotlight. According to a JP Morgan equity research report, tax changes and government measures have made equities more attractive than several other investment options.Government policy changes and revisions to the tax treatment of financial products have made equities more attractive than several other investment options, according to a JP Morgan equity research report. The report said this is likely to keep money flowing into Indian capital markets.It said the appeal of equity investing has increased even though stock market returns have remained subdued over the past two years."Policy and tax are also supportive: equity is taxed at 12.5% LTCG, and the removal of indexation, taxation of insurance policy proceeds, and slab-rate taxation for debt mutual funds improves equity's relative appeal," the report said.JP Morgan said these policy and tax changes, along with rising investments through Systematic Investment Plans (SIPs), should continue to support inflows into equity markets.

"The inflows should continue due to tax and policy," the report said.The report said domestic investors have continued investing in mutual funds through SIPs despite weak market returns and heavy selling by foreign portfolio investors in FY25 and FY26. It said this shows a long-term shift in household savings towards financial assets.According to the report, the favourable policy environment has further strengthened this trend by making equities more attractive than debt-oriented products and some insurance investments.It added that SIPs have become the main source of equity fund inflows and have helped protect domestic markets from external volatility.JP Morgan expects India's capital markets to continue benefiting from the financialisation of household savings, supported by government policy measures and growing retail participation.However, it said this outlook could weaken if monthly SIP inflows remain below Rs 250 billion for a sustained period or if regulatory changes lead to a more than 20% fall in derivatives trading volumes.