India's Nifty 50 Defies Asian Selloff on Tax Hopes and Fund Flows

India's Nifty 50 stayed in positive territory on Wednesday, even as chip-heavy Asian markets tumbled more than 3%. The index is being supported by expectations of tax relief, a return of foreign capital, and limited exposure to the AI sector.

For much of this year, foreign investors pulled money out of India to pursue AI-related opportunities in South Korea and Taiwan.

The Selloff That India Dodged

Asian equities declined after early US midterm outcomes sparked concerns of tighter regulation for artificial intelligence, hitting chipmakers particularly hard.

By midday, Japan's Nikkei 225 had fallen 4.05% from its prior close. South Korea's KOSPI dropped 3.29%, and Taiwan's TAIEX slipped 3.11%.

India's market has much less exposure to AI hardware. The Nifty 50 opened lower but recovered to 23,850.35, up 0.17% from Tuesday's close.

Consumer goods and financial stocks led the advance. The Nifty FMCG index rose 1.05%, and the Nifty Financial Services index gained 0.50%.

Two additional factors help explain the resilience, starting with domestic tax policy.

Tax Relief Hopes Drive India's Recovery

The Nifty rose 1.58% to 23,810.85 on Tuesday. Bloomberg reported that marked a fourth consecutive gain and a two-month high.

The rally came after Finance Minister Nirmala Sitharaman pledged to examine investor concerns about taxes on stock profits. India imposes a 12.5% capital gains tax on long-term holdings of listed shares and 20% on short-term holdings. She linked the discussion to outflows by foreign institutional investors (FIIs).

“The situation is very different now. Circumstances have changed, challenges have grown, more FII outflows have happened,” Sitharaman said.

Those outflows have weighed on markets all year, but the flow trend is beginning to turn.

Foreign Funds Are Returning

Global investors bought a net $2 billion of Indian equities during the last two weeks of October, according to Bloomberg. That would reverse the rotation BeInCrypto tracked in May, when AI demand pulled capital toward South Korea and Taiwan.

US political developments could reinforce the shift. Bloomberg noted that Democratic control of both chambers might soften US trade policy and weaken the dollar. A weaker dollar would support the rupee and attract more foreign capital to Indian stocks.

What Could Challenge the Nifty's Rally

Indian stocks now trail emerging-market peers by the widest gap in over three decades, Bloomberg reported. Still, the early gains remain fragile.

Brent crude near $103 a barrel poses another risk for India, a major oil importer. Sitharaman has also not set a timeline for tax relief.

If AI scrutiny deepens, India could continue attracting money leaving Asia's chip markets. A Republican Senate majority or disappointment on taxes would test that thesis.