LTCG tax reintroduction leads to equities’ steepest fall since November 2016 (Market Review)

BSE,By Porisma P. Gogoi,

Mumbai : The Indian equity markets witnessed the steepest fall since November 2016 — when demonetisation was put into effect — after the long-term capital gains (LTCG) tax on equities was re-introduced in the Union Budget for 2018-19, leading the Sensex to shed over 800 points and the Nifty50 over 200 points in a single day.

Breaking an eight-week winning streak, the key equity indices gave way to the bears following a huge sell-off in the markets on the last trading day of the week.

On a weekly basis, the barometer 30-scrip Sensitive Index (Sensex) tanked 983.60 points or 2.73 per cent to close trade at 35,066.75 points.

The wider Nifty50 of the National Stock Exchange (NSE) closed the week’s trade at 10,760.60 points — shedding 309.05 points or 2.79 per cent from its previous week’s close.

Market observers said disappointing announcements in the Budget like on the LTCG tax and a higher-than-expected fiscal deficit target for 2018-19 dampened the risk-taking appetite of investors.

“Domestic markets closed lower as investors were disappointed after the government proposed 10 per cent LTCG tax on equity gains above Rs 1 lakh in the Union Budget. The sentiments also got spooked after the finance minister revised upward its fiscal deficit target,” D.K. Aggarwal, Chairman and Managing Director of SMC Investments and Advisors, told IANS.

“Also, market mood got badly suffered after Fitch Ratings on Friday said high debt burden of the government constrains India’s rating upgrade. Meanwhile, the divestment target for 2018-19 has been set at Rs 80,000 crore,” he added.

In the Budget announced on Thursday, Finance Minster Arun Jaitley proposed to tax LTCG on equities exceeding Rs 1 lakh at 10 per cent, which is expected to bring in revenue of Rs 20,000 crore.

The government also revised upwards its fiscal deficit target for 2017-18 to 3.5 per cent of the gross domestic product, or the equivalent of Rs 5.9 lakh crore, which was higher than the earlier target of 3.2 per cent for the current fiscal.

“The week gone by saw the Nifty correcting sharply. This week’s losses came after eight consecutive weeks of gains,” Deepak Jasani, Head, Retail Research, HDFC Securities, told IANS.

“Sectorally, there were no gainers. The top losers were the realty, pharma, PSU banks and energy indices,” he added.

On the currency front, the rupee weakened by 51 paise to close at 64.06 against the US dollar from its last week’s close at 63.55.

Provisional figures from the stock exchanges showed that foreign institutional investors purchased scrips worth Rs 2,099.45 crore, while domestic institutional investors worth Rs 145.73 crore during the week.

Figures from the National Securities Depository (NSDL) revealed that foreign portfolio investors bought equities worth Rs 2,923.18 crore, or $460.08 million, during January 29 and February 2.

Arpit Jain, AVP at Arihant Capital Markets, said: “This week, the Indian equity benchmarks fell 2.75 per cent the most since demonetisation week.”

“Both the indices fell by 2.4 per cent a day after government announced to tax equity investments held for more than a year to boost its revenue,” Jain told IANS.

The top weekly Sensex gainers were: Mahindra and Mahindra (up 1.73 per cent at Rs 768.50); Indusind Bank (up 1.54 per cent at Rs 1,755.60); Hero MotoCorp (up 1.51 per cent at Rs 3,623.65); Tata Consultancy Services (up 1 per cent at Rs 3,149.15); and Hindustan Unilever (up 0.11 per cent at Rs 1,372.70).

The losers were: Dr. Reddys Lab (down 15.25 per cent at Rs 2,122.10); Tata Steel (down 8.60 per cent at Rs 669.70); Axis Bank (down 7.95 per cent at Rs 564.95); ONGC (down 7.59 per cent at Rs 192.45); and Bharti Airtel (down 6.81 per cent at Rs 421.80).

(Porisma P. Gogoi can be contacted at


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