Home >Markets >Stock Markets >Markets slump for second day ; auto stocks drag

Indian equity markets slumped for the second consecutive session on Monday after the union budget announced a proposal to increase the minimum public shareholding in listed companies and impose tax on buyback of shares.

The benchmark Sensex Index was down 1% or 394.67 points at 39102.79, while Nifty 50 share index fell 1.1% or 135.60 points to 11680.50.

In the Union Budget for 2019-20, finance minister Nirmala Sitharaman said the government has asked Securities and Exchange Board of India to consider reducing maximum promoter shareholding in listed entities to 65% from the current 75%, which would lead to minimum public shareholding in listed companies increasing to 35% from 25% as of now.

Sitharaman also proposed extending share buyback tax of 20% to listed companies.

Sentiment was also weak today, as, according to analysts, the budget was seen lacking in broad stimulus measures to revive the slowest economic growth in five years.

"As expected, the FY20 Final budget presented by the Govt. today was devoid of any meaningful stimulus, but focused on raising revenue (an effective de-stimulus). Headline deficit forecasts remain at 3.4% of GDP, but revenue assumptions look aggressive (25% YoY growth in an economy with under 11% nominal GDP growth); and are likely to be missed, in our view. Expenditure forecasts have been largely maintained from the FY20 interim budget (by ministry and by major scheme), but spends will have to be curtailed through the year. Any special payout by the RBI may be needed simply to meet forecasts", said BofA Merrill Lynch Global Research in a 8 July report.

"This budget is not the 'catalyst' stock markets were hoping for. Little is expected to happen top down in India for the next several months. MSCI India should move in line with EM. Unless growth improves, the broader market will likely remain weak given high valuations and poor earnings", BofA report added.

Investors will now focus on corporate earnings for the June quarter, macro economic data, and upcoming testimony of the US Federal Reserve chairman after a strong jobs report cast doubt on the pace of rate cuts.

Tata Consultancy Services Ltd and Infosys Ltd will announce their earnings on 9 July and 12 July, respectively. On the macroeconomic front, government will issue consumer price inflation and index of industrial production data on 12 July. Besides, progress of monsoon and global developments will also be on investors’ radar.

Auto stocks fell after government proposed a cut in goods and services tax rate on electric vehicles along with an additional income tax deduction of 1.5 lakh on interest paid on loans taken to purchase such vehicles. Hero MotoCorp fell 5%, Maruti Suzuki India was down 2.8%, Tata Motors Ltd fell 2.6%, Bajaj Auto declined 2%, and Mahindra & Mahindra was down 1%.

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