The Budget Angle to the Stock Market

Sensex logged its biggest single day decline in more than 3 years, as it crashed nearly 1000 points in a special trading session on Saturday (the day of budget speech). Rs 3.54 lakh crore worth of wealth was wiped out of investors as total market capitalisation of BSE listed firms came down to Rs 152.97 lakh crore from Rs 156.50 lakh crore on Friday. lets analyse the reasons for such a bearish reaction by the market.

BY SAHIL DESAI |  3 Mins Read            

                                                                                                                       

The stock market has been for long deviating from what the real economy was doing. the main expectations were that some big bang reforms would be introduced to allay the concerns regarding economic slowdown and to put india back on the growth track.

As the budget was unveiled the markets crashed, lets analyse the reasons for this crash:

Bears were completely in charge on the bourses (Stock Market) on the day of budget announcement as domestic equity benchmarks Sensex and Nifty crashed over 2.5 per cent each. In the final hour of the trade, S&P BSE Sensex crashed around 1,100 points, while the broader Nifty 50 index dropped 318 points. At close, Sensex ended 988 points or 2.43 per cent at 39,735.53 while the NSE’s Nifty 50 finished 318 points or 2.66 per cent at 11,643.80 points. 25 out of 30 Sensex stocks finished in red on Saturday (the day of budget announcement).

Factors which led to the meltdown of Stock Market

·      1.  No specific sops for any sector: Given the domestic economic slowdown and global uncertainty, the market was expecting the Union Budget to take sector specific stimulus packages for stressed segments such as real estate and auto sector, but no such steps were taken.

·      2.  Income tax slab confusion: Tax payers have the option to choose between the old and new income tax regime which has made the tax structure more complicated.

·     3.  LTCG tax stays: The market was largely expecting the Finance Minister to make some relaxation in long term capital gains tax, but there was no such mention. Analysts said it has caused significant confusion without yielding meaningful increase in tax collection.

·      4.Divestment target a bit too high:  Experts think that the divestment target of Rs 2.10 lakh crore is a bit too high, even if one includes the LIC stake sale.

·     5. Higher dividend tax on recipients: Finance Minister Sitharaman announced the abolition of dividend distribution tax, which will lead to a Rs 25,000 crore in revenue hit. But dividends will now be taxed in the hands of recipients which is a negative move for domestic investors.

·       The fallout of novel coronavirus also had an impact on Indian stock market.