Markets resilient despite capital gains tax, experts say earnings and liquidity intact

If the macro story of earnings remains intact, the negative sentiment in market over LTCG may not last, said experts.

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26 Aug, 2025 12:21

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The stock market staged a quick rebound from the Budget day low, showing strength, looking beyond the long-term and short-term capital gains tax tweaks introduced in the Union Budget on July 23.

Explaining why the market did not sell off, veteran market investor Raamdeo Agarwal said investors are choosing to look at the potential of earnings growth, which is intact, and that the negative market sentiment may not last. "People come to markets for capital gains which has not been impacted, not on what tax rate is in place," Raamdeo added.

Benchmark Nifty 50 registered an intra-day swing of nearly 500 points on July 23, and despite the tinkering in capital market taxation, ended flat at close.

Corporate earnings look intact, so the institutional investors will have to come, Raamdeo told CNBC-TV18, adding that mutual fund flows will decide the market trends going forward. According to a projection, the cash holding of equity-based mutual funds till June was at Rs 1.52 lakh crore, roughly 5 percent of the AUMs.

The short-term capital gains on equities shall now attract a rate of 20 per cent while long-term gains on all financial and non-financial assets will attract 12.5 per cent rate, revised upwards from 10 per cent earlier. Limit of exemption of capital gains has been increased to ₹1.25 Lakh per year to benefit lower and middle-income classes.

Broking shares, however, fell on news of the hike in the long-term capital gains tax (LTCG) and Securities Transaction Tax (STT) in the Budget 2024-25.

DAM Capital's Dharmesh Mehta too said the higher Short-Term Capital Gains (STCG) tax would be 'forgotten in two days'.

"People don't come here for 2.5% tax impact, they come for returns", he said in an interaction with CNBC-TV18.

Napean Capital's Gautam Trivedi came out in support of government's move to increase taxation of capital gains, and said it was necessary, given the degree of speculative activity in the markets. "The budget is not populist, and has focus on infra and agriculture, and while the debate has been on STCG, it was needed to cool down the markets", Gautam told CNBC-TV18.

"Hope now Sebi carries out some measures to rein in excessive speculation in the F&O segment to shift the momentum away from speculation to longer term investing.", Gautam Trivedi added.

Read More: Why hike in capital gains tax may not deter market investment

The Union Budget volatility resulted in an intensely busy day on Dalal Street, with the National Stock Exchange (NSE) clocking 25.97 crore trades in a single day, a world record in itself.