Sensex plunged nearly 400 points and Nifty50 dived below 11,900 taking support near 11,800 on July 5 after the Budget speech by Finance Minister Nirmala Sitharaman.
The final tally on D-Street – Sensex crashed 394 points to 39,513 while the Nifty closed 135 points down at 11,811.
In terms of sectors, the S&P BSE Metal index fell 3.8 percent, followed by the S&P BSE Realty index that was down 3.6 percent, and the S&P BSE Power index that was down 3.4 percent.
Vinod Nair, Head of Research, Geojit Financial Services Ltd said there were high expectations from the budget given the larger mandate of the new government.
“This excitement met with a weak financial position, limiting the government from announcing eventful new measures. Though below expectation, it provides a prudent plan for FY20 with a conservative approach to not overspend during this slowing economy,” he said.
Broader market underperformed benchmark indices as the S&P BSE Midcap index fell 1.39 percent while the S&P BSE Smallcap index was down 1.36 percent.
Experts say it was not a bad budget but rise in taxation for HNIs could have hurt sentiment, but that should be temporary and markets should eventually recover next week. The government introduced a lot of structural reforms at the macro level, and big infra-push should support the economy.
We have collated a list of top 5 factors that could have weighed on sentiment:
Tax on super rich:
Finance Minister proposed to enhance surcharge on individuals having taxable income from Rs 2 crore to Rs 5 crore and Rs 5 crore and above so that effective tax rates for these two categories would increase around 3 percent and 7 percent, respectively.
“The highlight of the budget is the higher tax on the super-rich. From the perspective of resource mobilisation and social justice, this cannot be faulted. But, it has to be acknowledged that the effective tax rising to 42 percent on the super-rich is very sharp,” VK Vijayakumar Chief Investment Strategist at Geojit Financial Services told Moneycontrol.
Buyback tax on listed companies:
One of the big setbacks of this budget could be buyback tax on listed companies. There could be a huge tax liabilities for companies as buyback tax is applied to buyback price minus the issue price, irrespective of the purchase price of the shareholders.
“With this amendment, a lot of companies would be discouraged to give back the accumulated profits to its shareholders,” Maulik Doshi, Senior Executive Director at SKP Business Consulting LLP said.
Many MNCs firms could consider delisting:
Increase in public shareholding from 25 percent to 35 percent for listed companies could lead to the delisting of many MNC firms. The proposal to raise public stake in listed companies is desirable but will face practical constraints, suggest experts.
“Increase in public shareholding proposed from 25 percent to 35 percent is potentially negative for MNCs and companies with high promoters holding,” Amar Ambani, President & Research Head, YES Securities said.
“In many mid and smallcaps, it is better to have more promoter skin in the game, since India's capital market is in the developing phase. Many MNCs listed on Indian bourses may consider delisting if the proposed shareholding norms are implemented,” he said.
Excise duty rise on petrol & metals:
The Finance Minister proposed to increase special additional excise duty and road and infrastructure cess each by one rupee a litre on petrol and diesel. She also proposed to increase customs duty on gold and other precious metals from 10 percent to 12.5 percent.
“The government proposed a special additional excise duty of Re 1/ litre on petrol and diesel. This could be a sentiment dampener for the street as it may have a slight impact on the consumer inflation in the near term,” Rajiv Singh, CEO, Karvy Stock Broking told Moneycontrol.
“Though the major part of the fuel prices is determined by the movement of international crude oil prices, the focus should be on them rather than the cess levied,” he said.
The government’s move to increase the customs duty on gold and other precious metals to 12.5 percent would help in increasing the domestic gold trade that would protect against the imported jewellery and gem companies.
“Certain moves like an increase in customs duty on gold and precious metals from 10 percent to 12.5 percent was against market expectations of a reduction in the duty. This could negatively impact gold & jewellery companies like Titan, TBZ, Shirpur Gold and Rajesh Exports,” Jayant Manglik, President - Retail Distribution, Religare Broking Ltd.
Custom duty on AC raised from 10 percent to 20 percent:
Jayant Manglik said that custom duty on indoor and outdoor split ACs was hiked to 20 percent from current 10 percent. This could negatively impact Voltas, Blue Star, IFB Industries and Whirlpool.
Stocks in News
Jewellery stocks ended the session on July 5 with loses of up to 8 percent intraday after the government increased import duty on gold and precious metals.
Hindustan Petroleum Corporation, Bharat Petroleum Corporation, and Indian Oil Corporation shares ended up to 3 percent lower after imposition of special additional excise duty on petrol and diesel.
Stocks in Asia ended muted ahead of the release of the US nonfarm payrolls report, which may provide clues as on whether the Federal Reserve will cut interest rates at its July monetary policy meeting.
Shanghai composite was up 0.19 percent to about 3,011.06 and the Shenzhen component added 0.8 percent to 9,443.22. The Hang Seng index was 0.13 percent lower.
Nikkei added 0.2 percent to close at 21,746.38 and the Topix rose 0.18 percent to end its trading day at 1,592.58. South Korea’s Kospi finished its trading day fractionally higher at 2,110.59.