The real pain from Finance Minister Arun Jaitley's Union Budget showed up in the domestic equity market on Friday, with the benchmark Sensex tanking 839 points, or 2.34 per cent, to log the biggest one-day fall in more than 15 months.
They also say foreign investors will flock to countries like Singapore and Dubai, which do not tax long-term capital gains. "Uncertainties over the execution of spendthrift budget without tampering fiscal deficit target have fuelled the current volatility and may compel the RBI to take a more hawkish stance in the upcoming monetary policy meeting", said Anand James, Chief Market Strategist, Geojit Financial Services. "To tax such long term capital gain exceeding Rs 1 lakh at 10 percent", said Jaitley in the Parliament. The budget proposals sought to re-introduce the long-feared, long-term capital gains tax of 10 per cent on equities from next year.
Negative cues from the global markets also hurt sentiment. At 10.44 a.m, the Sensex was trading down 491.74 points or 1.37% at 35,414.92 with 27 components falling.
The losses were broad-based as the BSE MidCap Index fell 2.22% and the BSE SmallCap Index slumped 2.92%. The tax will be applicable based on cost prices prevailing on 31st January 2018. He also extended FY19 fisc target to 3.3 per cent, from 3 per cent earlier.
"Clearly, the government did not follow the glide path (for fiscal consolidation) ..." While GDP growth at 6.3% in the second quarter of 2017-18 signalled turnaround of the economy, growth in the second half is likely to remain between 7.2% to 7.5%. Major Asian markets have closed on a mixed note.
European stocks ended Thursday's session in the red, extending losses for the fourth straight session on worries over rising bond yields after USA policymakers raised their forecast for inflation. A rising gilt yield puts pressure on banks to hike their lending and deposit rates. Further, the productivity of American firms and workers fell at a 0.1% annual pace in the fourth quarter. The index gained over 4 percent in December.