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Last Updated : Feb 05, 2018 03:00 PM IST | Source: Moneycontrol.com

Sell-off on Dalal Street: 5 factors that spooked markets

The Sensex shed around 900 points intraday on Friday, while the Nifty breached 10,750-mark, its ripple effects still being felt today

What was a virtuous cycle of growth in these past few months has now come to a halt, the Sensex shed around 900 points intraday on Friday, while the Nifty breached 10,750-mark, its ripple effect is still being felt today.

Here are the five reasons that are at play:

The LTCG factor: Announced as part of the Budget 2018, the introduction of long term capital gains (LTCG) tax freaked the investors who sold their shares in the market.

The Union Budget 2018 has said that long-term capital gains exceeding one lakh rupees from the sale of shares or equity-oriented funds will be taxed at 10 percent from April 1, 2018.

With no incentive to hold shares for long term, there could be a surge in investors booking profit in the short term.

The hiking of Customs Duty: The announcement by the Finance Minister to raise customs duties on certain items to boost India’s “Make in India” efforts. The hikes were aimed at discouraging imports from China and other Asian countries.

The move could also be seen as a protectionist measure. This would have negatively affected market sentiment.

Slippage in the fiscal and revenue deficit: The government revised its 2018-19 fiscal deficit projections to 3.3 percent of GDP and to 3.5 percent of GDP for the current fiscal. The original targets were 3 percent and 3.2 percent, respectively.

The Global correction: The markets in the United States are seeing a fall, with the S&P 500 dropping by over two percent — lowest in two years, which could also affect sentiment in India.

The fall is attributed to high yields on 10-year US treasury bonds, and rate hike concerns stemming from inflation worries as wages might be slated to grow.

Interest rates: Closer to home, the Reserve Bank of India, in its last policy review, warned about inflation remaining elevated, causing numerous market participants to factor in a rate hike sooner than later. Economists said they don’t see the country returning to a low interest rate regime any time soon, which might have been reflected in the market sentiment in the last few days.
First Published on Feb 5, 2018 02:58 pm
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