Daily Voice: FEMA simplification, PIS expansion in Budget unlikely to spur global inflows; FIIs seek stronger growth visibility, says Valtrust founder

Arihant Bardia is the CIO and Founder of Valtrust

• Budget signals that Government appears done with direct tax tinkering for now
• No fresh giveaways or populist tax cuts
• Budget positive from a long-term perspective but negative in short term

Did our AI summary help?

Simplification of FEMA rules and expansion of the Portfolio Investment Scheme in the Union Budget 2026 are welcome from a procedural standpoint, but unlikely to trigger meaningful global capital inflows, said Arihant Bardia, the CIO and Founder of Valtrust.

Unless India offers either superior growth visibility at current valuations or improved post-tax, post-currency returns, incremental easing of FEMA or PIS norms will have only a marginal impact, he said in an interview to Moneycontrol.

He believes the budget sends a clear signal of policy stability. "One important takeaway is that the government appears done with direct tax tinkering for now," said Arihant who rated budget as 7 out of 10 given the negative signal in the short term though positive from a long-term perspective.

Do you see a significant possibility of global capital flowing into Indian companies as the government simplifies FEMA rules and expands the Portfolio Investment Scheme?

While simplification of FEMA rules and expansion of the Portfolio Investment Scheme are welcome from a procedural standpoint, they are unlikely, by themselves, to trigger meaningful global capital inflows. The persistent FII outflows over the last year suggest that the issue is not access or regulatory complexity, but valuation comfort, post-tax returns, and currency risk.

Indian equities continue to trade at a premium to most emerging markets, and when combined with relatively high capital gains taxation and concerns around rupee depreciation, the risk-reward equation for foreign portfolio investors becomes less compelling. For global investors, currency-adjusted returns matter as much as headline growth.

Unless India offers either superior growth visibility at current valuations or improved post-tax, post-currency returns, incremental easing of FEMA or PIS norms will have only a marginal impact. Capital flows respond primarily to economics rather than regulatory optics.

Do you think the Budget has sent a strong signal of policy stability while striking a pragmatic balance between fiscal discipline and growth orientation?

Yes, the budget sends a clear signal of policy stability. One important takeaway is that the government appears done with direct tax tinkering for now. There are no fresh giveaways or populist tax cuts, which enhances predictability and reduces uncertainty for both domestic and global investors.

At the same time, the budget remains clearly growth-oriented. Public capital expenditure continues at elevated levels, manufacturing incentives are expanded, and strategic sectors such as semiconductors, electronics, biopharma, and data infrastructure receive long-term policy backing. Importantly, the fiscal consolidation path is maintained, which strengthens macro credibility. This balance between growth support and fiscal discipline is one of the budget’s key positives.

How would you rate the budget on a scale of 1–10, and what factors influenced your rating?

I would rate the budget as 7 out of 10. It is positive from a long-term perspective but negative in the short term.

The rating is supported by strong continuity in public capital expenditure, expansion of manufacturing incentives, and clear long-term policy support for strategic sectors such as semiconductors, electronics, biopharma, and digital infrastructure. The government’s commitment to fiscal consolidation further enhances macroeconomic stability and investor confidence.

Additionally, the correction in buyback taxation is a positive step. Buybacks are now treated as capital gains rather than dividends, which removes a long-standing anomaly and improves tax efficiency for investors. On the downside, the increase in Securities Transaction Tax (STT) on F&O trades and the retrospective taxation of Sovereign Gold Bonds purchased in the secondary market act as dampeners. Overall, the positives outweigh the negatives, but the budget stops short of being transformative.

Do you think the budget has done enough to ease the compliance?

The budget introduces some compliance-friendly measures, but the overall impact remains incremental rather than structural. Steps such as exemption of undisclosed foreign assets up to Rs 20 lakh from the Black Money Act for small taxpayers, extension of timelines for revised returns, a rule-based automated process for obtaining lower or nil TDS certificates, and allowing depositories to accept Form 15G/15H across multiple securities do reduce friction at the margin.

However, they do not materially simplify the broader compliance framework. A more comprehensive consolidation of filings, reporting requirements, and assessments is still awaited.

Do you get a clear message from the budget that policies and taxation are being aligned to position India as an export hub?

Yes, the message is clear, and it goes beyond exports to also include import substitution. Incentives for domestic manufacturing—such as for automobile components including automatic engines—underscore the focus on reducing import dependence while building export competitiveness. Long-term tax holidays for data centres and IFSC entities further support India’s ambition to export digital and financial services.

Equally important are measures to attract global talent and capital. Allowing expatriates relocating to India to remain exempt from tax on global income for five years will encourage skilled professionals and technology leaders to move to India. The GCC safe harbour provisions, including a 15% margin retention rule and an effective ~3.75% tax on total service revenues, provide much-needed tax certainty. Together, these steps strengthen India’s position as both an export hub and a global services destination.

Has the budget provided a significant thrust to new-age sectors?

Yes, the budget provides a strong thrust to new-age sectors through a combination of sectoral incentives and talent-friendly taxation. Expansion of semiconductor manufacturing, electronics, biopharma, and data infrastructure signals long-term policy commitment.

In addition, allowing NRIs / expats who have lived abroad for more than five years to relocate to India without being taxed on their global income for five years is a powerful reform. This will encourage many globally experienced Indians to return and set up ventures in technology, biotech, fintech, and advanced manufacturing, directly benefiting new-age sectors through capital, expertise, and global linkages.

Which sectors do you see as top investment opportunities after analyzing the Union Budget?

From a medium- to long-term perspective, the most attractive investment opportunities lie in biosimilars and biotechnology, the electronics manufacturing ecosystem, defence production, infrastructure, education, and healthcare. These sectors benefit from sustained public capex, policy continuity, import substitution themes, and rising domestic demand. Importantly, they also align well with India’s broader strategic priorities of self-reliance, export competitiveness, and human capital development, offering durable growth visibility over the next decade.