India’s Fiscal Shift: Implications for the Franklin FTSE India ETF

Franklin FTSE India ETF US35473P7693

India's recent federal budget for 2026 has introduced a pivotal corporate tax reform, fundamentally altering the landscape for share buybacks. This policy shift is of particular consequence for the major constituents of the Franklin FTSE India ETF, prompting investors to scrutinize whether corporate capital will now be directed toward dividends or tangible business investments.

The core change moves the tax liability for share repurchases from the corporate level to the shareholder. Under the new rules, short-term capital gains from such transactions will be taxed at 20%, while long-term gains will incur a 12.5% levy. Market observers widely anticipate this will diminish the appeal of buyback programs for large Indian conglomerates.

This fiscal adjustment presents a potential paradox: could it enhance the fund's appeal to income-focused investors? Analysts view the policy as a likely catalyst for increased dividend distributions or greater capital allocation toward research and development. Leading portfolio holdings like HDFC Bank and Reliance Industries, which together account for over 12% of the ETF's weight, may now need to deploy their reserves more strategically to maintain investor interest.

Competitive Fees Amid Policy Transition

The Franklin FTSE India ETF maintains a distinct competitive edge through its low-cost structure, even as markets digest the new fiscal environment. Its expense ratio of 0.19% stands significantly below comparable funds, such as the INDA ETF which charges 0.69%. The fund's performance is closely tied to the financial sector, which represents approximately 29% of the portfolio. This sector is especially sensitive to changes in fiscal policy, given its central role in governing credit flow and national investment.

Further support for valuations comes from the Indian central bank's interest rate cuts implemented in December 2025, which continue to benefit the IT and industrial segments. The fund's key holdings include HDFC Bank, Reliance Industries, ICICI Bank, and Infosys, with a pronounced sectoral focus on financial services and technology.

Trading at a current price of $37.99, the ETF sits just under 2% below its 52-week high. A Relative Strength Index (RSI) reading of 30.7 suggests the market may be in a short-term oversold condition.

Looking ahead, the scheduled semi-annual rebalancing of the underlying FTSE India RIC Capped Index in March 2026 will reveal how portfolio weightings have shifted following post-budget volatility. Investors are advised to monitor upcoming quarterly earnings reports for announcements regarding enhanced dividend payouts, which could constitute a larger component of total returns moving forward.