Sensex, Nifty fall over 1.5% as LTCG tax disappoints market investors
Mumbai: Benchmark equity index Sensex fell nearly 600 points on Friday as investors were disappointed after the government proposed 10% long-term capital gains (LTCG) tax on equity gains above Rs1 lakh.
“This (LTCG) may impact portfolio allocations, discourage longer term investments and result in reduced capital inflows into the share market,” said Care Ratings.
At 10.40am, BSE’s 30-share Sensex was at 35,314.97, down 601 points, or 1.60%. The National Stock Exchange’s 50-share Nifty stood at 10,830.40, down 175.45 points, or 1.59%.
“The government has reintroduced LTCG tax, although it was not expected but we are of the opinion that this will not impact the investment decision of the investors as only 10% of the gain will be taxed. The only concern is having both STT (securities transaction tax) and LTCG tax together. Back in 2004, STT was introduced in lieu of the LTCG. We feel that the reintroduction of LTCG tax would not adversely impact the capital market,” said Ajay Kejriwal, president, Choice Broking.
Investors were also worried after the finance minister revised upward its fiscal deficit target. Arun Jaitley in the budget revised his fiscal deficit target for 2018-19 to 3.3% of the gross domestic product (GDP) against the earlier target of 3%, after breaching the deficit target for 2017-18.
While the budget estimate of fiscal deficit for 2017-18 was 3.2% of the GDP, the revised estimate is now 3.5% of the GDP, the same as 2016-17. Jaitley pegged the government’s borrowing in the year at Rs6.06 trillion compared to Rs6.05 trillion in the year to March 2018.
“The fiscal deficit miss was broadly expected but is being considered a tad higher. If one drills down, it is evident the largest revenue miss is on dividend and profit front and the core revenue related to tax revenues is in place. This does provide a cushion that the government is capable of controlling the deficit and will not be boxed in by lower revenues. Going ahead, the market is more exposed to a commodity spurt and resultant inflation given the populist focus related to agriculture,” said Devam Modi, director of Equirus Securities.
Among the gainers, IT stocks were trading higher. TCS gained 1.3%, while Infosys Ltd rose 1.2%.
ITC Ltd gained for the second session after the government provided a breather to cigarette companies with no hike in excise duty in Budget 2018-19. Another cigarette maker, VST Industries Ltd, rose 4%.