'If domestic flows into equities slow down': Nomura India shares Nifty target, says this on LTCG, STT, STCG tax

Nomura India in its latest note said it does not expect the Union Budget announcements to have any material impact on near-term corporate earnings. The foreign brokerage, however, believes that market valuation multiples can face headwinds if the domestic flows into equities slow down following revisions in short- and long-term capital gains tax. The brokerage has a Nifty that suggests limited upside for the NSE barometer from here till 2024 end. 

The long-term capital gains tax (LTCG) on all financial assets, including equity, has been hiked to 12.5 per cent from 10 per cent. The short-term capital gains tax has been raised to 20 per cent from 15 per cent earlier. The Security Transaction Tax (STT) on futures has been upped to 0.02 per cent  from 0.01 per cent while the STT on options has been increased to 0.1 per cent from 0.062 per cent. This will be effective from October 1. 

Nomura India said there are concerns that the rate may be further raised in coming years. The Finance Secretary in media interaction, however,  suggested that there are no such intentions. The secretary also highlighted that 88 per cent of value of LTCG come from individuals with annual income above Rs 15 lakh.

Nomura India said it remains constructive in the long term, given macro stability and expectation of sustained earnings growth. Its Nifty target for December 2024 stands at 24,860,  based on 20 times December 2025 earnings.

"The target implies upside potential of 2 per cent from the current levels. The Indian market has been resilient and bounced back strongly post the election outcome in June 2024. Since Jun 3, (the day before election results), the markets have been up 4.6 per cent (dollar terms) outperforming most other markets. We are selective and have a bottom-up approach," it said.

The brokerage is relatively positive on financials, Infrastructure, capital goods and cement, telecom and power. It recently upgraded cement stocks based on expectation of higher volumes, lower costs and potential pricing strength as industry consolidates. The broking firm is cautious on consumption and metals while it has a 'neutral' stance on IT and Healthcare.

"Our top picks in large cap are SBI, ICICI Bank, Kotak Mahindra Bank, Bharat Electronics, Reliance Industries, and Bharti Airtel. In mid-caps, we like Federal Bank, Voltas, Lupin, MEDPLUS and and Uno Minda," it said.