Union Budget fails to cheer markets, Nifty below 11,850-level2 min read . Updated: 05 Jul 2019, 04:50 PM IST
- Sentiments were weak after extention of buyback tax was proposed for listed companies
- Indices slipped almost 1% at the end of session
Mumbai: Indian markets on Friday slumped nearly 1% after finance minister Nirmala Sitharaman in a budget announced proposal to increase the minimum level of public shareholding in listed companies that analyst expects could be a cause for concern.
Benchmark Sensex index fell 1%, or 394.67 points, to 39,513.39 while Nifty 50 share dropped 1.14%, or 135.60 points, to 11,811.15. BSE Midcap and Smallcap indices were also down 1.4% each.
In Union Budget, finance minister has asked Sebi to consider to reduce maximum promoter shareholding from current level of 75% to 65%. Meaning thereby, minimum public shareholding for listed companies has to be increased from current level of 25% to 35%.
"The overhang of this requirement of off-loading of promoter shareholding can have significant impact on the markets and the specific stocks. The regulator needs to provide sufficient time to meet this requirement so as not to over-flood the markets with stake sales by promoters", said Jagannadham Thunuguntla, Sr. VP & Head of Research (Wealth), Centrum Broking .
According to Central Broking at the current market prices, the total quantum of sale that needs to be done by these 1,174 companies works out to about whopping amount of ₹3.87 lakh crore.
"From capital market prospective this required in a country with limited free float, could create supply in the markets limiting the upside. 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" said Dhiraj Relli, MD & CEO, HDFC Securities expects.
The sentiments were also weak after Finance Minister Nirmala Sitharaman proposed to extend the buyback tax at 20% to listed companies.
"Taxing buybacks at 20% will close a loophole to avoid DDT. Companies may now not be willing to share a bigger portion of their distributable surplus with their shareholders. Dividend distribution may now be on par with buybacks and minority shareholders will be happier to receive dividends rather than being asked to participate in buybacks" Relli expects.
According to Vinod Nair, Head of Research, Geojit Financial Services, "There were high expectation from the budget given the larger mandate of the new government. This excitement met with the weak financial position, limiting the government from announcing eventful new measures. Though below expectation, it provides a prudent plan for FY20 with a conservative approach to not overspend during this slowing economy."
So far this year, foreign investors have bought $11 billion in equities while domestic investors have sold nearly ₹7,500 crore.
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