Equities in India dropped 230 points or 0.3% to 80,208 in early deals on Wednesday, retreating for the 4th straight session, as traders continued to digest the impact of hiking short-term and long-term capital gains taxes on financial instruments. Foreign fund outflows pressured sentiment, with the Nifty 50 shrinking below 24,500, tracking a fall in US stock futures after disappointing quarterly earnings results from mega-cap tech stocks. Traders anticipate the release of US key economic data, including PMIs, home sales, and PCE index will be due this week. Limiting the fall was the fresh data showed the private sector in India grew the most in three months, with the services sector expanding the most in four months, while factory activity growth remained robust. Banking sectors led the losses, followed by consumer goods, auto, and financial services, with notable losses from Tata Consumer Products (-2.6%), Bajaj Finance (-2.5%), Bajaj Finserv (-2.2%), and Mahindra & Mahindra (-1.9%).
The stock market saw a sharp decline yesterday (July 23) after the announcement of the Union Budget by Finance minister Nirmala Sitharaman. Both Sensex and Nifty experienced significant losses. The S&P BSE Sensex dropped below 80,000 while the NSE Nifty fell by 409 points. Three major reasons for the crash in stock market are: STT tax, LTCG & STCG tax change and tax on Share buyback.
Nirmala Sitharaman raised taxes on capital gains especially the long-term capital gains (LTCG) tax on equities which was increased to 12.5% from the previous 10% and short-term capital gains (STCG) tax which was increased to 20% from 15%. The LTCG tax exemption limit was also raised to ₹1.25 lakh from ₹1 lakh. The Finance minister also proposed to increase the rate of securities transaction tax (STT) on futures and options (F&O) trade with the aim to discourage retail investors' participation in the risky instrument, she said.
"It is proposed to increase the rates of STT on the sale of an option in securities from 0.0625 per cent to 0.1 per cent of the option premium, and on sale of a futures in securities from 0.0125 per cent to 0.02 per cent of the price at which such futures are traded," she said. This comes after the Economic Survey flagged concerns over rising retail investors' interest in derivative trading. Moreover, income from buyback of shares will be taxed at the hands of the recipient, Nirmala Sitharaman announced.
