The report said policy and taxation changes have strengthened the case for equity investing even as market returns 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.
According to JP Morgan, these structural policy changes, along with rising participation through Systematic Investment Plans (SIPs), are expected to continue supporting inflows into equity markets.
“The inflows should continue due to tax and policy,” the report said.
The report noted that despite weak equity market returns and heavy selling by foreign portfolio investors over FY25 and FY26, domestic investors have continued to channel money into mutual funds through SIPs, reflecting a long-term shift in household savings towards financial assets.
JP Morgan said the favourable policy environment has reinforced this structural trend by improving the attractiveness of equity investments relative to debt-oriented products and certain insurance investments. The report also highlighted that SIPs have emerged as the dominant source of equity fund inflows, helping cushion domestic markets against external volatility.
Looking ahead, the global investment bank believes India’s capital markets will continue to benefit from the ongoing financialisation of household savings, supported by policy measures and a steady rise in retail participation.
However, it cautioned that the investment thesis would weaken if monthly SIP inflows remain below Rs 250 billion for a sustained period or if regulatory changes lead to a more than 20 per cent decline in derivatives trading volumes.