📰Taxes Block India Investment, Canada-India Relations, India Drops Venezuelan Oil

Good afternoon, 

Welcome to the best way to stay up-to-date on India’s financial markets. Here’s what’s in today’s newsletter:

• Global funds are returning to India’s stock market despite lingering concerns about high capital gains taxes,

• Canada and India are making efforts to ease diplomatic tensions,

• and Reliance Industries halted further purchases of Venezuelan crude.

Then, we close with Gupshup, a round-up of the most important headlines.

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—Shreyas, [email protected]

Market Update.

Global Funds Return Cautiously to India’s Stock Market.

Global funds are returning to India’s stock market despite lingering concerns about high capital gains taxes, an issue that investors like Muddy Waters founder Carson Block have frequently criticized. India’s tax regime, which imposes significant levies on overseas investors, stands in contrast to other markets such as China, which offer more favorable tax treatment to attract foreign capital.

Last week, global funds recorded their first net purchases of Indian stocks in 2025, marking a potential shift after months of selling. So far this year, foreign investors have pulled approximately $15 billion (₹1.3 trillion) from Indian equities, citing not just tax burdens but also an uncertain economic outlook. In contrast, the country’s bond market has seen inflows, helped by expectations of interest rate cuts and the inclusion of Indian bonds in global indices.

Block and other investors argue that India’s high taxes deter foreign capital. Global funds are always looking for the best return, and lower tax rates would make India a more attractive destination. However, India’s government has shown little inclination to change its stance. Consultants suggest that policymakers want to maintain tax parity between domestic and foreign investors, and the recently approved 2025 budget even includes an increase in capital gains taxes.

A few alternatives: The lack of tax relief for global funds has forced investors to explore alternatives. One option is setting up operations in GIFT City, a financial hub with more lenient regulations. However, this requires hiring local staff, making it impractical for smaller funds. Meanwhile, debt investors have found ways to bypass Indian taxes by purchasing rupee bonds issued overseas by institutions such as the World Bank and the European Bank for Reconstruction & Development.

Block, who visited India earlier this year to explore launching a fund, acknowledged that capital gains taxes are a reality for investors. However, he emphasized the need for predictability, noting that uncertainty over tax impact can make investing in Indian equities less appealing.

Canada and India Start to Make Up — Over Tariffs.

Canada and India are making efforts to ease diplomatic tensions that have been marked by accusations and retaliatory measures, as both nations seek to strengthen trade ties in response to US tariff threats.

Discussions are underway about reinstating envoys after both countries expelled each other’s diplomats last year, according to sources familiar with the matter. Additionally, Canada’s intelligence chief Daniel Rogers recently participated in an intelligence conclave in New Delhi, hosted by India’s National Security Adviser Ajit Doval. A potential meeting between Modi and Canadian PM Mark Carney at the Group of Seven summit in Alberta this June is also being considered.

The initial split: The diplomatic rift began in September 2023 when fmr. PM Trudeau accused Indian officials of orchestrating the assassination of Sikh activist Hardeep Singh Nijjar, a Canadian citizen, in British Columbia. Modi’s government strongly denied any involvement, calling the allegations “absurd.” 

Carney’s recent rise to power in March has created an opportunity for a reset in relations. According to Canadian officials, Ottawa has been working to improve ties with India for months, with the condition that Canada’s laws and sovereignty are respected. The urgency to rebuild relations is heightened by new US tariffs, which both Canada and India fear could impact their economies. Carney has emphasized the need to diversify trade partnerships, noting that India presents opportunities for stronger economic collaboration.

Despite these diplomatic overtures, tensions persist. A recent report alleged that Indian agents had interfered to support Conservative leader Pierre Poilievre’s campaign in 2022. Poilievre has denied any wrongdoing, and India’s Ministry of External Affairs has yet to comment. 

Security concerns have also played a role in the strained relationship. Earlier this year, a team from the Royal Canadian Mounted Police visited New Delhi to meet with India’s anti-terror and anti-money laundering officials to discuss criminal gangs and the Sikh separatist movement. In October, Trudeau accused Indian diplomats of backing criminal activities in Canada, leading to the expulsion of several Indian officials. India responded by expelling Canadian diplomats, including 41 in 2023, over the Nijjar allegations.

Benefits of reconciliation: While trade between Canada and India remains relatively small, amounting to $8.4 billion (₹718.2 billion) in 2024, Canada is a crucial supplier of potash, timber, paper, and mining products to India. India, in turn, exports pharmaceuticals, jewelry, textiles, and machinery to Canada. Moreover, Canadian pension funds have invested $55 billion (₹4.7 trillion) in Indian sectors such as infrastructure, renewable energy, and financial services. Talks on a trade agreement were suspended in 2023 following Trudeau’s accusations.

India’s Foreign Ministry has expressed hope for a diplomatic reset, emphasizing that improved relations should be built on “mutual trust and sensitivity.” Whether the two nations can fully mend their ties remains to be seen, but the shared economic incentives suggest a willingness to move forward.

India is Reducing Venezuelan Oil Dependence.

Reliance Industries halted further purchases of Venezuelan crude following Trump’s decision to impose a 25 percent tariff on nations importing oil from the South American country. India’s largest privately owned refiner is still set to receive a cargo of Merey crude currently in transit from Venezuela, but any additional buying has been put on hold.

Reliance had previously secured waivers from the US to resume Venezuelan crude imports, and data from Kpler estimates the company has taken in about 6.5 million barrels since the start of the year. However, Trump’s new executive order, which imposes “secondary” tariffs on any country purchasing Venezuelan oil, is set to take effect on April 2, prompting Reliance to reassess its sourcing strategy. The company has not issued an official statement on the matter.

Other Indian refiners have occasionally sourced Venezuelan oil through intermediaries rather than directly from the country, but Russian crude, offering a combination of lower costs and easier accessibility, has remained the preferred option. Reliance has also been an active buyer of Russian oil, taking advantage of discounted barrels following Western sanctions on Moscow.

Meanwhile, China remains the dominant buyer of Venezuelan crude, accounting for over 40 percent of its exports in February. While private Chinese refiners may momentarily pause purchases due to heightened scrutiny, the overall flow of sanctioned oil from Venezuela is expected to continue.

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Gupshup.

Macro

• India's swap markets are pricing in sharper-than-expected rate cuts by the central bank in FY26, with OIS rates falling 10-15 basis points in March. Analysts now predict at least 75-100 bps of easing, citing weaker growth and inflation tracking below the Reserve Bank of India’s forecast.

• Indian stocks fell as profit-booking ended a seven-day rally, with the Nifty 50 dropping 0.77 percent and the Sensex losing 0.93 percent. Investors turned cautious ahead of potential U.S. tariff announcements, with financial stocks leading the decline and major players like HDFC Bank and Reliance Industries slipping.

• India’s export growth has slowed this fiscal year due to global tariff uncertainties, impacting trade flows and investment, the government said in its February economic report. Despite these risks, it maintained the country’s 2024/25 growth forecast at 6.5 percent, citing improved momentum in early 2025.

• Bank of America has raised its gold price forecasts to $3,063 per ounce for 2025 and $3,350 for 2026, citing uncertainty from U.S. trade policies. The bank noted that rising investment demand and central bank reserves could further drive prices higher, while fiscal tightening and easing geopolitical tensions remain potential risks.

• India expects strong domestic steel demand to offset the European Union's tighter import restrictions set to take effect in April. While India's exports to the EU make up a significant portion of its steel trade, local consumption remains far higher, minimizing the potential impact.

Equities

• Maruti Suzuki, India’s largest carmaker, will invest $864 million (₹74.1 billion) to build a third plant in Haryana, boosting its total capacity to 750,000 vehicles per year by 2029. The expansion aims to meet rising demand, including for exports, as Maruti maintains its position as India’s top car exporter.

• Bharti Airtel and its unit Bharti Hexacom prepaid $698.33 million (₹59.85 billion) to clear high-cost spectrum dues from the 2024 auctions, reducing their debt burden. This move lowers Airtel’s overall spectrum-related liabilities to 520 billion rupees and cuts its cost of debt to 7.22 percent.

• India’s Wipro secured a 10-year, $645 million deal with British insurer Phoenix Group to handle life and pension business administration, the company announced Wednesday. As part of the deal, Wipro will expand its UK presence with new tech and operations hubs, absorbing some Phoenix employees. 

Alts

• IndusInd Bank raised $2 billion through market deposits in March after revealing a $175 million accounting discrepancy in its derivatives portfolio. The bank’s reliance on higher-cost bulk deposits signals an effort to strengthen liquidity and reassure investors amid governance concerns.

Policy

• Maharashtra has scrapped its proposed 6 percent sales tax on electric vehicles over $35,000 to boost adoption in India’s growing EV market, the state’s chief minister announced Wednesday. The reversal comes as Tesla prepares to enter India, competing with local automakers like Mahindra and Tata, both of which already manufacture EVs in Maharashtra.

• A U.S. religious freedom panel has urged sanctions against India’s external intelligence agency, RAW, over alleged assassination plots targeting Sikh separatists. The panel also recommended designating India as a "country of particular concern" for worsening minority rights, but India dismissed the report as biased and politically motivated.

See you Thursday.

Written by Yash Tibrewal. Edited by Shreyas Sinha.

Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.