The Dalal Street witnessed a surprising bloodbath in the Tuesday trading session after the Finance Minister, Nirmala Sitharaman proposed higher capital gains taxes on the listed financial assets with an immediate effect.
The Union Budget increased the short-term capital gains tax on the listed financial assets to 20 per cent from 15 per cent previously. Whereas the long-term capital gains (LTCG) tax increased to 12.5 per cent from 10 per cent. However, the exemption is extended to Rs 1.25 lakh from 1 lakh for LTCG.
Additionally, the government also declared an increase in the Securities Transaction Tax (STT) on Futures and Options. The STT on futures will rise from 0.0125 per cent to 0.02 per cent, while the STT on options will increase from 0.0625 per cent to 0.10 per cent.
The National Stock Exchange (NSE) Nifty 50 index traded 0.86 per cent lower at 24,294 whereas the S&P Bombay Stock Exchange (BSE) Sensex traded 845 points or 1.05 per cent lower at 79,656 levels on the closing bell.
Nifty Moves
In the Nifty 50 index, merely 12 stocks traded in the positive territory, while 38 stocks slipped into the red territory.
Among the losers, Larsen & Toubro shredded around 3 per cent followed by nearly 3 per cent dip in ONGC and Shriram Finance. Hindalco, Power Grid and Bajaj Finance lost more than 2 per cent in the afternoon session.
However, among the winners, ITC and Titan rallied more than 4 per cent. While Tata Consumers and Adani Ports traded more than 2 per cent higher.
Analyst Note
“The tax hikes on capital gains are in line with the expectations with the existing and potential gains financial assets offer and we expect the continuity of liquidity to the markets unlike in 2018. The FM has increased the threshold amount for taxation to seemingly compensate for the increased taxes but that isn’t of much relief to investors,” said Divam Sharma, Founder and Fund Manager, Green Portfolio.
Investors surely are disappointed but markets however will be fine soon. This is nothing new for the Indian markets having seen even 20 per cent LTCG tax two decades ago. So, while the investor sentiment will stay a bit dull for some time, it will soon recover, added Sharma.
“The government's stated concern about channelling household savings into the capital market, as outlined in the Economic Survey, seems to have materialised in this policy decision. A clear shift from momentum to value-oriented stocks is now evident,” said Sonam Srivastava, Founder and Fund Manager, Wright Research.
While the budget maintained infrastructure spending at the same level as the interim budget, disappointing expectations of a higher allocation from the RBI dividend, infrastructure stocks are likely to exhibit a gradual positive bias, added Shrivastava.
Sectoral Movement
In terms of sectoral performance, Nifty Bank fell more than 600 points or 1.21 per cent, whereas Financial Services plummeted 1.46 per cent. Further, PSU Banks dropped 1.2 per cent.
Metal also traded fragile with a 1.51 per cent dip followed by 0.3 per cent drop in Auto and IT respectively. Pharma remained flat, however FMCG surged 2.4 per cent.
The more domestically focussed indices, Mid-cap and Small cap also traded with significant losses of 0.8 per cent and 1.3 per cent higher respectively.
