People watch Finance Minister Nirmala Sitharaman tabling Union Budget 2019-20, at Vashi in Navi Mumbai (Photo: PTI)
People watch Finance Minister Nirmala Sitharaman tabling Union Budget 2019-20, at Vashi in Navi Mumbai (Photo: PTI)

Five reasons why investor wealth plunged 2.2 tn on Sitharaman's maiden Budget

  • Investors believed the Budget proposals did not contain any concrete proposals to ease liquidity crunch facing the financial markets
  • Shares fell after Sitharaman proposed increasing the minimum public shareholding in listed companies to 35% from 25

Equity benchmark indices tumbled on Friday as panic selling weighed in after Finance Minister Nirmala Sitharaman presented the Union Budget for 2019-20. The BSE S&P Sensex closed 395 points or one% down at 39,513 while the Nifty 50 dropped 136 points to 11,811.

The market capitalisation of BSE-listed companies plunged 2,22,579.67 crore to 1,51,35,495.86 crore.

Increase in public shareholding threshold: Presenting the Union Budget for 2019-20, Finance Minster Nirmala Sitharaman said it was the right time to consider increasing minimum public shareholding to 35% from 25%. This stoked fears about liquidity, PTI reported. Sitharaman unveiled the proposal while presenting the budget for the fiscal year ending March 31, 2020 to parliament. She said the government has asked the Securities and Exchange Board of India to consider the proposal, but did not give many other details, Reuters reported.

"From the capital markets perspective, the increase in minimum shareholding requirement from 25% to 35%, though required in a country with limited free float, could create supply in the markets, limiting the upside," Dhiraj Relli, MD & CEO, HDFC Securities, told PTI.

"If enough time is given for achieving this, then it may have limited impact. However, India's weight in MSCI and other global indices could rise following this, leading to benefit over the medium term," Relli said.

"The big surcharge tax on high income group and possible squeezing of secondary market liquidity due to disinvestment and increased public shareholding is causing the stock market to fall today," Amar Ambani, President & Research Head, YES Securities told PTI.

"While we need to await Sebi regulations regarding how much time will be given to these companies to meet with this minimum public shareholding norms, the overhang of this requirement of off-loading of promoter shareholding can have significant impact on the markets and the specific stocks," Jagannadham Thunuguntla, Senior VP and Head of Research (Wealth), Centrum Broking, told PTI.

Rajiv Singh, CEO of stock broking at Karvy Broking, told Reuters that many companies would need to increase their public shareholding, mostly by selling of promoters' stakes or additional equity issuance.

Many PSUs have not been able to meet even the 25% public shareholding norm till now, while there is already a lack of appetite for non-bluechip companies, traders told PTI.

No big stimulus: India plans to narrow its budget gap target to 3.3% of the gross domestic product for the financial year that started April 1 compared with 3.4% set in February’s interim plan. That is contrary to expectations that the government will spend more to boost a slowing economy.

“There’s no big fiscal stimulus plan, quite contrary to what many investors expected and that’s dragged the stocks down," Vivek Ranjan Misra, head of fundamental research at Karvy Stock Broking Ltd. in Hyderabad, told Bloomberg. “To add to it, more levy on high net individuals has hurt sentiments further."

“India has limited options to boost growth, exports, and the farm and manufacturing sectors," Jigar Shah, head of research at Maybank Kim Eng Securities India Pvt. in Mumbai, told Bloomberg. “Earnings growth for Indian companies will be challenged by the slowing economy and other headwinds."

Fears of inflation abound: Investors believed the Budget proposals did not contain any concrete proposals to ease liquidity crunch facing the financial markets. Though corporate taxes were cut to 25%, the government raised import tariffs on items such as gold and imposed additional duty on petrol and diesel which could fuel inflation, ANI reported.

IT stocks fall: Shares of IT companies fell with Tata Consultancy Services (TCS), Infosys, Wipro, and HCL Technologies down nearly 5% after the Budget proposed to extend the buyback tax at 20% to listed companies as well. "For a company like Tata Consultancy Services, if they are to raise the public holding to 35%, they will have to sell stocks for billions of dollars. This will have a lot of practical difficulty - it was not well thought out," VK Vijayakumar chief investment strategist at Geojit Financial Services, told Reuters.

16 of 19 BSE sector indexes fall: Sixteen of the 19 sector indexes compiled by BSE Ltd. declined, led by a gauge of metal stocks. Eleven of these gauges retreated more than 2%.

Twenty-five of the 31 Sensex members and 43 of the 50 Nifty stocks dropped. Among the top 500 companies, more than four fell for each share that gained, Bloomberg reported.

At the BSE, 1,711 scrips declined and 770 advanced, while 127 remained unchanged.

From the 30-share pack, 24 companies fell, with Yes Bank emerging as the top loser, dropping 8.36%, followed by NTPC, M&M and Vedanta. At the National Stock Exchange, all sectoral indices were in the red except for FMCG and banking.

Yes Bank fell to its lowest since May 2014, the steepest among Sensex and Nifty members. The shares are down 51% this year amid the lender’s spat with the regulator and changes in management.

Investors also remained edgy after comments on Chinese and European currency manipulation by US President Donald Trump.

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