Sensex and Nifty crashed in afternoon trade amid FM Nirmala Sitharaman presenting her second consecutive Budget speech in Lok Sabha today. While Sensex fell 708 points to 40,015 with 26 components in the red, Nifty lost 221 points to 11,741. HUL (1.75%), HCL Tech (0.86%), Infosys (0.78%) were the top Sensex gainers. Top Sensex losers were L&T (3.90%), HDFC (3.18%) and ICICI Bank (2.39%).
"The markets have fallen because the long term capital gains tax remains. Also, dividend becoming taxable in the hands of investors led to negative sentiments," said VK Sharma, Head, PCG & Capital Market strategy at HDFC Securities.
Vikas Jain, Senior Research Analyst, Reliance Securities said, "There was disappointment from global markets and from budget too. Except for personal tax brackets, there was no major boost for any industries. Key support levels of 11,850 being broken which put further pressure on broader markets."
Lack of positive announcements for common man in the Budget apart optional income tax cuts led to negative sentiment on Dalal Street.
Vinod Nair, Head of Research at Geojit Financial Services said, "The budget is below the par considering that the market had very high expectations from the government with support to the economy and more spending which is lacking in the details. Adding flexibility to fiscal deficit of FY20 is positive but extending the same to FY21 would have provided more confidence to the market. In a normal scenario, this budget would have been considered as good providing tax benefit to the common man, corporates and focus on farmers' incomes, but the situation required more."
"The market expected substantial measures or stimulus to revive the growth momentum in the short term. Also, there were expectations on long term capital gains tax relief and higher FDI limits in sectors such as insurance. However, we believe the budget has taken encouraging steps to kickstart farm sector reforms such as contract farming and increase investments in farm infrastructure like warehouses which should drive farmers' incomes. Higher disposable incomes through tax slab cuts in low-to-mid income category, adjusted for exemption removals may be moderately positive for consumption revival," said Suman Chowdhury, Ratings - President at Acuite Ratings & Research.
LTCG tax was introduced in Union Budget 2018-2019. The government had estimated imposition of this tax would bring marginal revenue gain of about Rs 20,000 crore in the first year. Investors had sought LTCG tax relief from the government in last year's Budget too.
In September last year, PM Narendra Modi had promised foreign investors that the government was working towards "bringing tax on equity investments in line with global standards".
But non-tweaking or no relief from LTCG tax led to a crash in Sensex and Nifty today.
Currently, long-term means a holding period of more than one year from the date of purchase of securities. Anyone selling listed equity shares after holding them for one year has to pay 10% LTCG tax on the profit earned over Rs 1 lakh in an year.
Short-term capital gains or profit from sale of equities within a holding period of one year are taxed at a rate of 15%.
On Friday, BSE 30-share S&P Sensex closed 190 points lower at 40,723 and NSE 50-share index Nifty50 ended 73 points lower at 11,962.
By Aseem Thapliyal