Equity indices crash after government re-introduces LTCG tax

Mumbai: Reintroduction of the long-term capital gains (LTCG) tax, along with weak global cues, led to a huge sell-off in the markets on Friday with the key Indian equity indices falling the steepest since November 2016.

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

On a closing basis, the barometer 30-scrip Sensitive Index (Sensex) plunged by 839.91 points or 2.34 per cent to 35,066.75 points.

The BSE market breadth was bearish as 2,548 stocks declined as against 295 advances.

On the National Stock Exchange, the wider Nifty50 dropped 256.30 points or 2.33 per cent to close at 10,760.60 points.

“Markets corrected sharply on Friday as selling intensified during the day. Investors seemed to be disappointed with the fiscal deficit numbers and introduction of LTCG tax,” Deepak Jasani, Head, Retail Research, HDFC Securities, told IANS.

“Negative global cues also spoiled sentiments. Major Asian markets have closed on a mixed note. European indices like FTSE 100, DAX and CAC 40 were trading in the red,” added Jasani.

In the broader markets, the S&P BSE mid-cap index dipped by 4.03 per cent and the small-cap index by 4.65 per cent.

“Markets tumbled as the LTCG tax on equities investments dampened sentiment, while bonds slid for a second consecutive session on worries that the central bank would become more hawkish on inflation,” Dhruv Desai, Director and Chief Operating Officer of Tradebulls, told IANS.

“Investors worried that higher spending and the government’s move to raise minimum support prices for crops could lead to higher retail prices at a time when consumer price inflation has already hit a 17-month high of 5.21 per cent, well above the Reserve Bank of India’s target of 4 per cent,” he added.

According to Anita Gandhi, Whole-Time Director at Arihant Capital Markets, both the Sensex and the Nifty50 saw heavy selling post Budget day as investors were disappointed with LTCG coming in over and above STT (securities transaction tax).

“However, budget is aimed at spurring demand from rural India and masses going forward to take care of India growth story. Execution and implementation will be the key ahead. Inflation is expected to rise and margins of the companies may also see some contraction,” she added.

Vinod Nair, Head of Research, Geojit Financial Services, said: “Market skid as deviation in fiscal path and higher rural spending hit investors’ sentiment. Additionally, rising inflation and yield may push the RBI to be more hawkish on interest rate in the coming monetary policy.”

On the currency front, the Indian rupee weakened by four paise to close at 64.06 against the US dollar from its previous close at 64.02.

“The Indian markets opened on a weak note and continued to fall led by selling in financials, mid-caps and small-caps,” said Sandeep Chordia, Executive Vice-President – Strategy at Kotak Securities.

“In our opinion, global market volatility led by rising bond yields, profit booking (markets had notched one of the best monthly gains before budget) and concerns on deteriorating macro-economic condition were the probable reasons for the market fall,” he added.

All the 19 sub-indices of the BSE plunged into the negative territory.

The S&P BSE auto index plummeted by 906.19 points, followed by banking index by 878.16 points, consumer durables index by 744.58 points and the capital goods index by 743.14 points.

Major Sensex gainers on Friday were: Tata Consultancy Services, up 0.33 per cent at Rs 3,149.15; Hindustan Unilever, up 0.10 per cent at Rs 1,372.70; and Wipro, up 0.05 per cent at Rs 301.40.

Major Sensex losers were: Bajaj Auto, down 4.90 per cent at Rs 3,242.60; Bharti Airtel, down 4.62 per cent at Rs 417.80; Axis Bank, down 4.28 per cent at Rs 564.95; Maruti Suzuki, down 4.28 per cent at Rs 9,000.30; and Reliance Industries, down 4.07 per cent at Rs 905.70.