Feb 6: Ever since the India Budget 2018-19 was presented to Parliament on February 1, the equity markets have witnessed a downtrend that has now culminated in a 1000 point decline in BSE Sensex in early morning trade on Tuesday. The Nifty 50 Index crashed 3.09% or 329.60 points to 10,336.95 in morning trade.
The major cause for the fall was attributed to the reintroduction of the Long Term Capital Gains Tax (LTCG) at the rate of 10% while global factors also contributed to the downfall, analysts said. Worries about rising US bond yields which hit a four year high, raising speculation that the Federal Reserve will raise policy rates more aggressively. The yield on the 10-year US Treasury Note neared 2.9 percent on Monday– a level last seen in January 2014. The yield has gone up 50 basis points since the start of the year.
The corporate tax cut to 25% was also expected to benefit only small and medium enterprises with a turnover of Rs 250 cr which dampened the market sentiments. The increase in customs duty thus giving the impression of getting more protectionist and keeping the income tax slab rates intact led to the weakening of stock markets post Budget.
The Foreign Institutional Investors (FIIs) were net sellers having sold shares worth Rs 12.6 bn while domestic investors providing the much needed support buying to the tune of Rs 11.6 bn.
Is the downtrend worrying?
Some analysts argue that the market is in for a re-adjustment or correction following the global and domestic developments and could soon stabilize and continue its upward journey. Finance Secretary Hasmukh Adhia said that the sell-off in equities was not due to LTCG. The 10% LTCG on equities was lesser than the 20% levied on unlisted equities and immovable property. The MSCI (All Country World Index) had fallen by 3.4% last week.
Akash Prakash of Amansa Capital in the Business Standard opined that the sell off was focused on small and mid-cap stocks some of which were quite overvalued. There seems to have been consolidation in these counters. Broadly, the economy is growing and corporate earnings are also improving. With Reserve Bank likely to maintain the status quo with regard to policy rates and positive momentum created by introduction of Goods and Services Tax (GST), markets could recover in no time, analysts said.