Ahead of the US mid term elections on Nov 3, 2026, less than 3 months away, Donald Trump is considering some exemptions in the long term capital gains structure, as per this article.

The changes contemplated, and likely approved, are an indexation for inflation benefit, and, for property sales, an exemption from tax for property sale upto $ 2 million.

Trump should be told that India, which he recently described as a hellhole, had introduced indexation in 1992. That is 34 years before a word rhyming with hellhole thought of the idea. If the change comes through, the largest holders of equity, viz. institutional investors and large holders of stock in their own companies, would surely take advantage of the exemption and sell their holdings, with a follow on action (also thought of by Indians). The sale and repurchase would be done simultaneously, for a small brokerage fee, resulting in the cost of purchase rising in the books, to current valuations. Thus cushioning future capital gains.

But for those stocks, whether in US or elsewhere, which holders don’t want to hold on to, there would be immense selling pressure. The American indices are at or little under peak, as is the FTSE, Japan’s Nikkei is 5.5% below, China’s Shanghai Composite is 7.5%, BSE Sensex is 10 % below peak. Huge selling pressure triggered by indexation benefit to American investors can bring the bear out of hibernation in these markets.

For owners of homes in US valued under $ 2 million, one could expect similar sale and buy back deals by owners, to increase their book cost and so cushion the impact of a future capital gains tax on sale.

What is the rationale for the move to provide indexation tax benefit on assets and exemption on property sale upto a value of $2 million? After all, the US Government is $ 39.8 trillion in debt, the interest on which is $1.1-1.2 trillion, annually. The costly war in Iran is showing no signs of ending, at least not in a negotiated way.

Recently Iran’s hard liners have placed a new set if conditions for a settlement. (See around 23:00 of this video). These include a closing of all US bases in the region, Iran to have full control over the Strait of Hormuz, the US to pay reparations for the war based on an independent assessment, and to provide the funding path for it. Trump is seeking from Iran reparations for the Americans killed or wounded, a relinquishment of Iran’s quest for a nuclear weapon and of its claim on the Strait of Hormuz. So a negotiated settlement seems as ephemeral as a desert mirage.

Perhaps the only rationale is that the benefits on capital gains and exemption from tax for properties up to $ 2 m is some sort of a quid pro quo for support of the influential in the Nov 3 mid term elections. The dermatological infections affecting American backs require frequent scratching, especially as elections approach.

India’s trade deficit in July reached a 6 month high of $ 32 b. The Iran war has stanched the trade flow, not only of crude oil/natural gas/refined petroleum products, but also of fertilisers, inputs like sulphur and ammonia, and industrial products like aluminium, methanol and helium. This will adversely impact India’s current account deficit, resulting in a continuing slide of the INR, and higher interest rates.

Global interest rates are also rising because of huge demand for debt issued by AI hyperscalers issuing bonds in Canada, Switzerland and UK markets. Investor appetite for issuances from AI front runners will be tested this fall, when leading frontier firm, Anthropic, will make an IPO. It hopes to get a valuation of $ 2 trillion.

Last week the BSE Sensex closed at 78009 for a weekly drop of 490 points.

In India the biggest corporate development was the resignation of N Chandrasekaran as Chairman of the Tata group. He will step down from the two Tata Trusts, which control 66% of the holding company Tata Sons. Chandrasekaran was awaiting clarity on extension of his term a Chairman, which expires in Feb 27. He will step down then. The absence of proper succession planning in the largest corporate group in India, does not bode well for the group.

Stock markets are at or near their all time highs. If jolted by institutional selling, prompted by a change in tax provisions on capital gains, they can easily tumble. This calls for caution.

——————————————————————————————————

Comments may be sent to: jmulraj@asiaconverge.com