Markets recoup losses even as tax hike impacts investor sentiments

as the trading session came to an end, the benchmarks recouped a significant part of their losses with the 30-share Sensex closing at 80,429.04, down 73.04 points or 0.09 percent. The broader Nifty settled at 24,479.05, down 30.20 points or 0.12 percent

It is often said that looks can be deceptive and on Tuesday, it was clearly evident in the stock markets.

For the benchmarks ended the day almost flat, thereby totally concealing the fact that it was a highly volatile day as finance minister Nirmala Sitharaman rattled the markets by hiking both long-term capital gains tax and short-term capital gains tax apart from increasing the Securities Transaction Tax (STT) on derivatives.

The impact of the announcements was corroborated by the fact that the benchmark 30-share Sensex plunged more than 1200 points in a matter of minutes following the announcements related to the taxes that directly impact the investor and trader community.

Around 12:31pm, the Sensex fell to an intra-day low of 79,224.32, down 1205 points from Monday’s close of 80,502.08, as Sitharaman announced that LTCG tax rate would be increased to 12.5 percent from the current 10 percent while STCG rate would be hiked to 20 percent from the current 15 percent.

Further, STT on derivatives has been hiked to 0.02 percent.

However, as the trading session came to an end, the benchmarks recouped a significant part of their losses with the 30-share Sensex closing at 80,429.04, down 73.04 points or 0.09 percent. The broader Nifty settled at 24,479.05, down 30.20 points or 0.12 percent.

The market breadth was also weak with as many as 2160 stocks losing ground on BSE, as against 1743 advances. The broader indices including BSE MidCap, BSE SmallCap, BSE 100, BSE 200 and BSE 500 among others fell more compared to the benchmark Sensex.

In terms of stocks and sectors, metal recycling entities like Gravita India, Urban Enviro Waste Management, Antony Waste Handling, and Eco Recycling moved northwards following positive announcements for recycling critical minerals.

Similarly, consumer durables shares jumped as Sitharaman announced significant measures to boost rural demand, consumer spending and economic growth. Titan, ITC, Adani Ports, NTPC and HCL Tech were among the top gainers in the Nifty Consumer Durables index, which itself was up around 2 percent.

On the other hand, railway stocks including IRCTC, Container Corporation of India (Concor), Titagarh Rail Systems, Texmaco, and Rail Vigas Nigam Ltd (RVNL) all ended in the red as the budget failed to meet the market expectations for the sector.

Among the Sensex pack, 17 lost ground with stocks like HDFC Bank, L&T, ICICI Bank and Reliance Industries contributing the most to the day’s fall. On the other hand, the gainers’ pack was led by ITC, Infosys and Titan.

Jefferies India upgraded ITC Ltd to a buy rating, raising the target price to Rs 585 per share, up 25 percent from current market price after tobacco taxes remained unchanged in Budget 2024.

Market participants, however, have put up a brave face and are saying that the hike in taxes is indeed a “dampener” or a “sentiment spoiler” but the long-term case for equities remains intact.

“Change in capital gains tax (increase) and increase in STT may be a near term sentiment spoiler, however as market focus moves to growth trajectory and earnings potential, the medium to long term case for equities remain intact,” said Lakshmi Iyer, CEO-Investment & Strategy, Kotak Alternate Asset Managers.

“FPI continues to be net buyers in both equities and fixed income, which also adds to the liquidity flows from external sources,” she added.

Similarly, market veteran Shankar Sharma said that he is “cautious” in terms of the impact of the tax hike.

“Markets have run up a lot, and they look for reasons to correct. Incremental bad news can have a disproportionate effect. This tax hike is an unnecessary sentiment spoiler when things are going well, said Sharma, the founder of GQuant.

Meanwhile, Amit Jeswani, Founder, Stallion Asset says that the market is not reacting badly to bad news and the “markets are giving us signs that we are in a bull market.”

“If you would have asked me in the morning how would the market react if the government increased short-term capital gain tax from 15 percent to 20 percent, I would have told you the market would be down two or three percent,” he said.