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FM meets capital market participants: key takeaways

Mutual fund bosses and broking company heads pitched for a reduction and even outright removal of the Long Term Capital Gains Tax.

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By Surabhi Upadhyay  August 12, 2019, 6:48:11 AM IST (Updated)

FM meets capital market participants: key takeaways
Finance Minister Nirmala Sitharaman’s meeting with market participants on Friday seemed to hit the right notes with respect to building confidence. The minister was said to be very patient and receptive to most suggestions and ideas discussed by the group. Reducing taxes was one of the biggest talking points and the FM heard out the market men’s rationale behind the request. Mutual fund bosses & broking company heads pitched for a reduction and even outright removal of the Long Term Capital Gains Tax. Some of them argued that the Securities Transaction Tax (STT) was brought in as the country didn’t have a long term capital gains tax and thus having both taxes today is detrimental to investors’ interest.


The other key talk point was ease of investment and here the FM is believed to have taken a very favourable view of the requests. Market participants are pushing for doing away with the need of having multiple KYC or know your client requirements. As of now capital market institutions can’t use the KYC done by banks and are required to do their own background checks. They argue that this increases the cost of compliance and should be done away with.

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More investment by the Employees' Provident Fund Organisation (EPFO) was another pitch taken up during the Friday meeting. Mutual fund & stock market players asked the government to consider more participation by the EPFO in active funds. At present, the EPFO has the mandate to invest up to 15 per cent of its corpus in equities. It has been investing closer to 5 per cent of its Assets under management (AUM) in the capital market as of now and most of that is via index funds or ETFs.

If North Block does move on this point and gets the EPFO to commit more money to actively managed funds then it could provide an ample flow of long term money to the market. This liquidity booster could be a game changer with respect to domestic flows and help counter the gush of foreign portfolio investment (FPI) outflows in times of turmoil. However investing retirement savings in equity markets has always been a contentious political issue and thus a quick move on this front may not be possible immediately.

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Other demands in Friday’s meeting were regarding the fixed income market. Participants stressed on the need to have a formal NBFC debt resolution mechanism in place – something that is being experimented with for the first time in the form of DHFL. There was also the request for more avenues of NBFC refinancing.

Finally market participants also urged the Finance Minister to curb any regulatory over-reach. The pitch was – don’t clamp down on financial market innovation just because of some failures and market volatility.  Market participants feel India’s capital market still has a long way to go when it comes to offering a full range of market instruments and financial products which can deepen the corporate bond market and also help market players hedge better and mitigate risk.
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