India Capital Market Reforms Foreign Institutional Investors (FIIs) have maintained a aggressive selling stance throughout early 2025, resulting in a total outflow of **$21 billion**. This sustained divestment has placed significant pressure on Indian equities and shifted the focus toward upcoming policy interventions. The upcoming Union Budget is now viewed as a critical pivot point. Market participants are looking for specific fiscal signals that could arrest this trend and stabilize the domestic investment environment. Morgan Stanley’s India equity strategist, Ridham Desai, identifies three primary capital market reforms essential for reversing these outflows. Implementing these measures is expected to be a prerequisite for restoring international investor confidence. The first reform involves simplifying the current capital gains tax structure. A streamlined framework would provide the clarity and long-term predictability that global funds require before recommitting significant capital to the region. The second focus area targets the enhancement of liquidity in the secondary market. By reducing frictional costs associated with trading, the government can make Indian markets more competitive relative to other emerging market peers. Finally, the brief emphasizes the need for consistent regulatory policies regarding foreign ownership limits. Clearer guidelines in this area would allow institutional desks to better manage portfolio allocations without the risk of sudden policy shifts.