The domestic equities market experienced a notable sell-off on Tuesday. The disappointment among investors during the Budget 2024-25 announcement was evident as Finance Minister Nirmala Sitharaman increased short-term and long-term capital gains tax, in addition to raising the securities transaction tax (STT) on futures and options (F&O).
Market Performance
The Sensex initially opened higher before the Budget 2024-25 announcement but began losing ground as the Budget Speech 2024-25 approached. During the speech, the Sensex dropped significantly, falling nearly 850 points before recovering some losses. By the end of the day, the BSE Sensex was marginally down by 73.04 points, closing at 80,429.04, while the NSE Nifty fell 30.20 points to 24,479.05.
Reasons for Market Decline
Finance Minister Nirmala Sitharaman announced several tax increases that contributed to the market’s decline:
- STT on F&O securities was raised by 0.02 per cent and 0.1 per cent.
- Long-term capital gains (LTCG) tax increased to 12.5 per cent from 10 per cent.
- Short-term capital gains (STCG) tax on certain assets rose to 20 per cent.
For example, selling listed securities such as equity shares and units of equity-oriented mutual funds (where equity exposure is above 65 per cent) before a year now incurs a short-term capital gains tax of 15 per cent.
Kirang Gandhi, a personal financial mentor, commented, “The 2024 Budget has increased the short-term capital gains (STCG) tax to 20% and the long-term capital gains (LTCG) tax to 12.5%. This has caused some market instability as investors react to the higher taxes. While the goal is to raise more revenue, these changes might discourage short-term trading and make long-term investments more attractive, potentially changing how the market behaves in the coming months.”
Additionally, the government plans to raise the capital gains exemption limit on certain financial assets to Rs 1.25 lakh per year for the middle and upper-middle class. Income received from share buybacks will also be taxed in the hands of recipients, Sitharaman added.
Impact on Companies
| Companies | Performance |
|---|---|
| Larsen and Toubro (L&T) | Declined up to 3.10% |
| Bajaj Finance | Declined |
| SBI | Declined |
| Axis Bank | Declined |
| HDFC Bank | Declined |
| Titan | Gained up to 6.63% |
| ITC | Gained |
| Adani Ports | Gained |
| NTPC | Gained |
| Infosys | Gained |
Vinod Nair, head of research at Geojit Financial Services, stated, “Domestic investors had high expectations from the budget to increase revenue and capital expenditure. However, the narrative is mixed, by curtailing expenditure while attaining fiscal prudence, which can limit further growth. During the year, the market has fairly factored in ongoing growth and is trading at a high premium. To sustain that gap, corporate growth has to be maintained, which is experiencing a slowdown as per the ongoing Q1 results.”
