Stock markets on Monday went on a roller-coaster ride as a series of tax proposals upset the apple cart of bulls who were expecting several sops to boost the market and India Inc. Dalal Street witnessed sharp swings to the tune of 850 points with the Sensex even plunging 660 points at one stage. The fabled index closed lower by over 152 points at 23,002 on a flurry of buying activity by domestic institutions.
On the other hand, bonds and the rupee rallied after Finance Minister Arun Jaitley said the government would stick to its fiscal deficit target of 3.5 percent for 2016-17, raising expectations the Reserve Bank of India (RBI) may cut interest rates before its next policy review in April. The benchmark 10-year bond yield ended down 16 bps at 7.62 percent, after falling as much as 18 bps intraday, the lowest since January 22, 2016. The 10-year benchmark bond yield posted its biggest single-day fall since June 8, 2015.
The rupee also strengthened by nearly 20 paise to 68.42/43 against the dollar on hopes the budget would support economic growth and attract more foreign inflows. The rupee had closed at 68.62/63 on last Friday.
On Dalal Street, energy companies such as Oil and Natural Gas Corp (ONGC) slumped after the government unveiled a higher-than-expected tax in its budget for 2016-17, offsetting hopes for rate cuts that had lifted bonds and the rupee. ONGC fell 9.72 per cent to Rs 194.10 after the government said it would change a tax called the Oil Industries Development Cess on locally produced crude oil from Rs 4,500 per tonne to a higher-than-expected 20 per cent of the value of the commodity.
The market was not enthused by Finance Minister Arun Jaitley’s proposed 10 per cent tax on dividends above Rs 10 lakh and the hike in securities transaction tax (STT) to 0.05 per cent from 0.017 per cent in equity options. “On the domestic front it is perhaps a mixed bag as far as the capital market is concerned. We welcome the proposal to list general insurance companies to the stock exchange platform and focus on corporate bonds in particular. I am sure that many are also pleased with the fact the govt has decided to continue with the STT paid transactions rather than introducing other taxes etc,” said Chitra Ramkrishna, MD & CEO, National Stock Exchange.
The barometer BSE Sensex fell 152.30 points or 0.66 per cent to settle at 23,002, its lowest closing level since February 25, 2016. The 50-unit Nifty 50 index lost 42.70 points or 0.61 per cent to settle at 6,987.05, its lowest closing level since February 25. The Sensex settled a tad above the psychologically important 23,000 level. However, the Nifty settled below the 7,000 level.
Among the sectoral indices on the BSE, the IT index (down 2.11 per cent), Teck index (down 2 per cent), capital goods index (down 1.99 per cent), consumer durables index (down 1.75 per cent), oil & gas index (down 1.5 per cent), telecom index (down 1.16 per cent), industrials index (down 1.15 per cent) and the auto index (down 1.08 per cent) remained weak.
Index heavyweight and cigarette major ITC edged higher by 1.65 per cent in volatile trade, shrugging off a hike in excise duty on tobacco products in the Budget. Stocks of PSU banks were mixed after the Finance Minister announced Rs 25,000 crore for recapitalization of PSU banks in FY 2017. Shares of car major Maruti Suzuki India fell by 4.88 per cent after Jaitley proposed to levy an infrastructure cess of one per cent on small petrol, LPG, CNG cars, 2.5 per cent on diesel cars of certain capacity and 4 per cent on other higher engine capacity vehicles and SUVs.
Vinod Nair, Head-Fundamental Research, Geojit BNP Paribas, said, “the union budget has a strong long-term vision of maintaining fiscal consolidation at 3.5 per cent for FY17, expanding the rural economy and increase in infrastructure outlay. Having said that in the near-term the setbacks are: PSU banks recap of Rs 25,000 crore which is below estimates, hike in STT for F&O options, introducing DDT for HNIs, no reduction in tax especially for corporate which is against the expectation and no draft about the introduction of GST.”
On the Budget day in 2015, the Sensex had gained 141.38 points. Meanwhile, the Sensex and Nifty have fallen by 6,359.50 points, or 21.65 per cent and 1,914.80 points, or 21.51 per cent, respectively since last Budget 2015-16.