They’re calling it the Terminator Tax

Panicky investors sold, driving the benchmark Sensex lower by 112 points after Chidambaram squeezed the capital market and industry for more funds. The index closed 2.26 per cent lower at 4843.84.

The biggest disappointment for markets was the move to replace the long-term capital gains tax with a turnover tax, which will also be paid by mutual funds who buy taxable securities in a stock market.

Upset over the new 0.15 per cent tax on all share purchases (including on speculative intra-day deals), brokers protested outside the 130-year-old Bombay Stock Exchange building. ‘‘My income is likely to fall by one third,’’ said 28-year-old broker Erish Shah. Investor wealth—market capitalisation or total market value of all listed shares—plunged by Rs 36,000 crore in the day.

‘‘The introduction of turnover tax of 15 basis points was higher than expected and in the short term may be viewed negatively by traders and affect market liquidity,’’ said Hemendra Kothari, chairman, DSP Merrill Lynch. Stock prices zig-zagged in a turbulent trading day. The BSE-index crossed the 5,000-point mark around noon after Chidambaram increased the foreign direct investment limit in power, insurance and telecom, but fell back after his tax announcements.

The NSE S&P CNX Nifty index ended 48.65 points lower at 1,518.15, coming off its day’s high of 1,586.55.

Yet stocks in computer, shipping, telecom and tractor firms bucked the gloom thanks to favourable measures announced in the budget.

Hike in steel excise duty from 8 per cent to 12 per cent was another disappointment. Steel is a key input in growth sectors like automobiles and construction, and analysts said this would have a cascading effect on the prices of many items.

By the time Chidambaram ended his speech, the Sensex was down by almost 53 points. Though the index briefly recovered later, worried investors unloaded stocks, fearing a heavy burden from the Budget.

Yet analysts said the budget was sprinkled with announcements that could counter Thursday’s knee-jerk reaction.

Market experts said the budget has clearly signalled that the focus on reforms will continue. The cut in short-term capital gains tax, tax sops on equity schemes and sops to sectors like shipping, computers and tractors were also welcomed.

Bankers also welcomed the FM’s moves on the deficit front as commitment to fiscal prudence.