Market stages a smart recovery post Budget crash; Sensex swings 1,500 pts

Indian equities witnessed sharp volatility on Tuesday after Finance Minister Nirmala Sitharaman tabled Budget 2024 in the Parliament, with the BSE benchmark Sensex swinging as much as 1,542 points during the session. India Volatility Index (India VIX), which calculates stock market volatility in India using the Nifty 50 index, surged as much as 27% from the day’s low of 12.63 to hit an intraday high of 16.06, which was triggered after the FM Nirmala Sitharaman, in a surprise move, proposed to hike short term and long term capital gains taxes. However, the budgetary proposal to cut corporate tax and increase standard deduction under the new tax regime injected positivity in the market, helping indices pare early losses.    

During the session, the 30-share Sensex declined as much as 1,278 intraday today to hit an intraday low of 79,224. From the day’s high of 80,766, the BSE benchmark nosedived as much as 1,542 points. In a similar trend, the NSE Nifty plunged 508 points to 24,074 from the day’s high level of 24,582.

Finally, the BSE Sensex settled 73 points lower at 80,429, and the Nifty50 ended at 24,479, down 30 points.

Similarly, the broader midcap and smallcap indices witnessed smart recovery after falling up to 3% in intraday trade. Paring most of the day's losses, BSE midcap and BSE smallcap indices ended lower by 0.74% and 0.18%, respectively.

On the BSE Sensex pack, 11 out of 30 stocks ended in green, led by Titan, ITC, Adani Ports, NTPC, and Infosys. On the other hand, L&T, Bajaj Finance, State Bank of India, Axis Bank and HDFC bank were among top five laggards.

Early today, the BSE Sensex opened higher at 80,731, up by 230 points, or by 0.30%, and the NSE Nifty belled at 24,570, up by 61 points, or by 0.25%. In line with benchmark indices, the broader market also gained in opening trade, rising up to 0.3%.  

The market slipped into losses soon after the FM, in her budget speech, proposed to hike short term and long term capital gains taxes. The FM has announced to increase short term capital gains tax (STCG) to 20% from current level of 15%, while long-term capital gains (LTCG) tax to 12.25% from 10% currently. In a slight respite to long term investors, long term capital gain exemption has been raised from ₹1 lakh to ₹1.25 lakh.

According to market experts, hike in STCG is likely to adversely affect short-term investors in the near term.

The increase in the tax rate on long-term capital gains and short-term capital gains on equity, along with the increase in securities Transaction Tax (STT) on futures and options, are aimed at moderating currently heightened activity levels and fostering a more sustainable pace of growth in the stock market, says Shripal Shah, MD & CEO, Kotak Securities.

“We anticipate a small period of adjustment as the market adapts to these new tax measures, but this will ultimately contribute to a sustainable investment landscape with balanced and orderly growth of the capital market,” Shah adds.

Santosh Meena, Head of Research, Swastika Investmart, termed the budget as a mixed bag with surprising measures. “While capital expenditure and the fiscal deficit target remain steady, significant changes to tax policies, particularly the increases in LTCG, STCG, and STT, are likely to impact market sentiment,” he says.

“We should closely monitor the Nifty's key support level at 24,150. If Nifty manages to hold above this level despite the budget's negative implications, it could resume its bullish momentum and target the 25,000 level. Conversely, if Nifty falls below 24,150, it may decline further towards the 23,640 level,” he adds.

Ahead of the budget announcement, market experts have warned that any tweak in capital gains tax could spoil the mood at Dalal Street. “Any deviation from market expectations could attract some negative reaction in the short term. However, the chances of this occurring appear slim,” Axis Securities had said in a note.

Sunil Nyati of Swastika Investmart had also said that investment sentiment is currently very strong, and the government must avoid decisions, such as hiking LTCG or STT, that could disturb the market mood.

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