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Sensex logged its biggest single-day decline in more than three years, as it nosedived nearly 1,000 points in a special trading session on Saturday, as market participants gave a big thumbs down to Finance Minister Nirmala Sitharaman’s Budget for 2020-21. Investors lost Rs 3.54 lakh crore as total market capitalisation of BSE-listed firms came down to Rs 152.97 lakh crore from Rs 156.50 lakh crore on Friday.
Contrary to expectations, Budget did not offer any specific sectoral sops, and tax experts dubbed the new personal tax rules as “complicated”. The much-awaited tweak to long-term capital gains tax did not find a mention, and while dividend distribution tax (DDT) was abolished, it will now be taxed in the hands of the recipients.
Experts believed that the divestment target of Rs 2.1 lakh crore was also too optimistic.
BSE’s 30-share Sensex tumbled 2.43 per cent or 987.96 points to close at 39,735.53, while NSE’s 50-share Nifty declined 2.66 per cent or 318.30 points to close at 11,643.80 points. This was the worst close for both the indices since October 27, 2019.
Here are the key factors which led to the meltdown in Indian market:
Budget didn't have specific sops for any sector, be it auto or real estate, as widely expected to create demand in the economy and lift it out of the current slowdown. Vinod Nair, Head of Research at Geojit Financial Services, rated Budget ‘below par’, considering that the market had very high expectations from the government. The support for the economy in terms of more spending was lacking.
Given that even this year’s divestment proceeds will be much less than the Budget target of Rs 1.05 lakh crore, the Rs 2.10 lakh crore target for FY21 a bit too high, even if one includes the LIC stake sale. "LIC IPO might have been factored in, as the strategic divestment figures cannot go up so much.
The market was largely expecting the Finance Minister to make some tweaks to long-term capital gains tax (LTCG). But there was no such announcement. Investors were expecting the government to either abolish the tax or extend the tenure to two years from one at present. The government re-introduced LTCG in 2018 after a gap of 14 years. Analysts said it has caused significant confusion without yielding meaningful increase in tax collection.
