Return of LTCG tax wipes out Rs 4.58 lakh crore of investor wealth.
MUMBAI: The equity markets witnessed a massive sell-off on Friday wiping out nearly Rs 4.58 lakh crore of investors wealth as the budget proposal to tax long term capital gain on equities and dividend distributed by mutual fund equity schemes dampened investors sentiment.
The Sensex plummeted 839.91 points or 2.34 per cent to close at 35,066.75, posting its biggest single day loss in 15 months.
The Nifty tanked 256.30 points or 2.33 per cent to end the session at 10,760.60.
According to experts, the market didn’t find any support from even global equities as most of the Asian markets traded the day with deep cuts amidst a sharp spike in US bond yields.
“In our opinion, global market volatility led by rising bond yields, profit booking (markets had notched one of the best monthly gains before Budget) and concerns on deteriorating macro-economic condition were the probable reasons for the market fall,” said Sandeep Chordia, executive vice-president, strategy at Kotak Securities.
According to him, investors should moderate their return expectation this year and continue to buy stocks that are backed by good managements and strong balance sheets available at reasonable valuations.
The small- and mid-cap stocks were hammered badly as many of them had risen too fast with their business fundamentals failing to keep pace with valuations. The BSE small-cap index slumped 4.65 per cent while the BSE mid-cap index dropped 4.03 per cent.
“The major part of Friday’s correction could be attributed to the Budget announcement of imposition of long term capital gains tax on equity, tax on distributed income by equity oriented mutual funds and fiscal slippage. The move surprised the street as most participants were factoring in a change in definition of long term to two or three years from a year,” said Devang Mehta, head of equity advisory, Centrum wealth.
He noted that the markets were overheated and a healthy correction will lead to some bit of compression in price earnings multiples. “One should ideally have a shopping list ready and a strategy to deploy funds in tranches. Rural consumption, agriculture, infrastructure, capital goods and cement are few themes and sectors to nibble into,” he added.
Interestingly, FPIs remained net buyers of domestic equities worth Rs 950 crore after pumping in Rs 1000 crore on the Budget day. On the other hand, DIIs sold shares worth Rs 508.78 crore.
The volatility index (VIX) jumped 8.10 per cent on the NSE.
Meanwhile seeking to comfort jittery investors, economic affairs secretary Subhash Chandra Garg said the sharp fall in the stock market is a “short term phenomena” and they need not worry as the growth story is intact.