MUMBAI: The Union Budget announcements on Saturday failed to boost investors sentiments, with BSE Sensex plunging to 988 points on massive sell-off across sectors and Nifty slipping below the 11,700 mark. Except IT sector stocks, shares of almost every sector ended in red.
At the end of the Budget presentation, Sensex slipped 793 and after few hours it shed over 1,200 points and finally closed the day loosing 2.6 per cent at 39,735 while Nifty plunged 318 points at 11,643. According to analysts, market crashed because investors were anticipating measures to revive the Indian economy.
Other factors include non-abolition of LTCG, confusion about the impact of DDT removal and taxing dividends in the hands of recipients. The overhang of Coronavirus outbreak also got magnified in the later half of the session that created negative impact. However, the market participants believe that stock market may regain in near term.
"The markets have reacted negatively to the Union Budget, due to some disappointments over account of non-abolition of LTCG, confusion about the impact of DDT removal and taxing dividends in the hands of recipients. Further, the alternative provided to individuals for lower rate of tax, provided they do not claim exemptions or deductions, did not seem too attractive," said Dhiraj Relli, MD, CEO, HDFC Securities.
"The finance minister did not even acknowledge in her Budget speech that there is a severe slowdown in the economy. The current nominal growth of 7.5 per cent is the slowest growth witnessed in many decades. The equity markets were expecting the government to acknowledge and act with a sense of urgency," said Raghvendra Nath, MD, Ladderup Wealth Management.
According to Relli, the continuance of LTCG and now dividend taxation might not stimulate positive sentiments for the capital markets but other themes in the Union Budget show a clear thrust towards improving the competitiveness of Indian businesses and citizens while providing liquidity in the hands of individuals. “Whether this will result in consumption revival will be interesting to watch,” said Relli.
Fiscal prudence principles for FY21
The finance minister has done well in abiding by the fiscal prudence principles for FY21 and targets set by her look achievable. But it will be crucial for her to stick to it for FY21, else international rating agencies might have adverse views over this, according to analysts.