Markets bleed day after Budget

A day after the reintroduction of the long-term capital gains (LTCG) tax, coupled with weak global cues, bears roared loud on Dalal Street on Friday. BSE benchmark index Sensex suffered the worst and tanked 840 points — its single biggest decline in more than three years — roiled by 10 per cent LTCG tax burden and worries over the Government, seemingly to be losing its grip on fiscal deficit.

Investors’ wealth was also eroded by Rs 4.6 lakh crore amid massive selling in the stock market. Similarly, broader NSE Nifty plummeted over 250 points to finish below the 10,800-mark, leaving the investors disappointed all through the day with the tight bear-hug.

Market observers said the announcements in the Budget like on the LTCG tax and a higher-than-expected fiscal deficit target for 2018-19 also dampened investors’ risk-taking appetite.

The Budget 2018-19 presented on Thursday imposed LTCG tax of 10 per cent on equities and investors will also have to pay 10 per cent tax on distributed income from equity-oriented mutual funds. Following the sharp decline in stocks, the market capitalisation of BSE-listed companies tumbled Rs 4,58,581.38 crore to Rs 148,54,452 crore.

Besides LTCG tax woes, fiscal deficit also dried out the spirit of investors’ sentiments as well. Finance Minister Arun Jaitley also projected a fiscal deficit of 3.5 per cent of GDP for the current fiscal against the earlier target of 3.2 per cent. Market mood suffered another setback after Fitch Ratings said the high debt burden of the Government constrains India’s rating upgrade.

The flagship Sensex crashed 839.91 points, or 2.34 per cent to end the day at 35,066.75 as jittery investors slashed their portfolios. This is its biggest single session fall since August 24, 2015, when it had lost 1,624.51 points. The broader NSE Nifty cracked below the 10,800-mark by tanking 256.30 points, or 2.33 per cent, to 10,760.60 at close and intra-day, it hit a low of 10,736.10.

“The major part of Friday’s correction can be attributed to introduction of tax on distributed income by equity-oriented mutual funds and fiscal slippage. The move surprised the Street as most participants were factoring in a change in definition of Long Term to two or three years from a year,” said Devang Mehta, Head — Equity Advisory, Centrum Wealth Management.

If calculated on weekly basis, the Sensex, however, declined to 983.69 points, or 2.72 per cent, while the Nifty fell 309.05 points, or 2.79 per cent, snapping their eight week-long winning streak. “Volatility in bonds and rupee over fiscal slippage and stocks’ churn ahead of FY19 over LTCG prompted sharp pull back in stocks. Uncertainties over the execution of spendthrift budget without tampering fiscal deficit target have fuelled the current volatility and may compel the RBI to take a more hawkish stance in the upcoming monetary policy meeting,” said Anand James, Chief Market Strategist, Geojit Financial Services.

Meanwhile, domestic institutional investors (DIIs) sold shares worth Rs 358.50 crore, while foreign portfolio investors net bought shares worth Rs 1,099.780 crore on Thursday, as per provisional data. Bajaj Auto was the worst performer among the Sensex constituents by falling 4.90 per cent, followed by Bharti Airtel 4.62 per cent.

Other losers were Axis Bank, Maruti Suzuki, Reliance Industries, Tata Steel, M&M, HDFC Ltd, ICICI Bank, Hero MotoCorp, Kotak Bank, L&T, SBI, Tata Motors, Yes Bank, Adani Ports, IndusInd Bank, NTPC and HDFC Bank, losing up to 4.28 per cent.

All the sectoral indices ended in the red. BSE realty plunged 6.28 per cent, followed by infrastructure (4.03 per cent), power (3.94 per cent), capital goods (3.59 per cent), auto (3.47 per cent), consumer durables (3.37 per cent), finance (3.23 per cent), PSU (3.11 per cent) and oil & gas (3.04 per cent).

Broader markets too suffered a meltdown, with the small- cap index falling 4.65 per cent and mid-cap index down 4.03 per cent. Globally, in the Asian region, Japan’s Nikkei ended 0.90 per cent down, while Hong Kong’s Hang Seng shed 0.12 per cent. Shanghai Composite Index, however, gained 0.44 per cent.