Indian Stock Market Takes a Dip After Budget 2024 Announcement

The Indian stock market experienced a significant downturn today as the Finance Minister, Nirmala Sitharaman, unveiled the Budget for 2024-25. The announcement included a noticeable increase in the Securities Transaction Tax (STT) on Futures and Options (F&O) securities, which sent shockwaves through trading floors.

Initially, the 30-share BSE Sensex reacted positively, surging immediately after the presentation began. However, that enthusiasm was short-lived as the index quickly slipped into negative territory. This afternoon, the Sensex plummeted by over 1,260 points, landing at 79,235.91. The NSE Nifty followed a similar trend, dropping 435 points to reach 24,074.20.

Just before Sitharaman’s remarks, the Sensex had climbed to 80,766.41, and the Nifty had gone as high as 24,582.55. But the tide turned drastically as traders absorbed the implications of the proposed tax hikes.

In her address, Sitharaman mentioned plans to raise the capital gains exemption limit for certain financial assets to ₹1.25 lakh annually for middle and upper-middle-class investors. Yet, the proposed increase of STT rates seemed to overshadow this announcement.

The government outlined that the STT on the sale of options in securities would rise from 0.0625% to 0.1% of the option premium. Likewise, the tax on futures transactions would go up from 0.0125% to 0.02%. This essentially means that traders operating in these markets will bear a heavier tax burden.

Moreover, the Finance Minister disclosed other tax adjustments that were not welcomed by the trading community. Long-term capital gains (LTCG) tax on all financial and non-financial assets will now incur a tax rate of 12.5%, a noticeable increase from the previous 10%. Short-term gains on specified financial assets will now be taxed at a rate of 20%, up from the earlier 15%.

The market’s immediate reaction was one of panic, with many traders logging off as the numbers dipped sharply. Among the main losers in the Sensex pack were significant names like Larsen & Toubro, Bajaj Finance, Power Grid, Reliance Industries, State Bank of India, and Bajaj Finserv.

On the contrary, some stocks, such as Titan, ITC, Hindustan Unilever, and Adani Ports, managed to emerge as gainers during this turbulent session.

Analysts suggested that investors were not prepared for the tax hikes, which worked against their expectations. Historically, when tax increases are announced, investor sentiment often dwindles, and this occasion was no different.

Experts projected that the upward revision in tax rates could lead to a slowdown in market participation, particularly in F&O trading. The sudden shift in policy instigated conversations around possible changes in trading strategies amongst institutional and retail investors alike.

V K Vijayakumar, the Chief Investment Strategist at Geojit Financial Services, shared insights that the tax hike may not have as significant an impact as many believed. He pointed out that while the markets did respond negatively, the increase wasn’t as drastic as it could have been, given the initial fears of a much higher LTCG rate of around 15% or even 20%.

“The tax blow is not big. There is also an increase in exemption from ₹1 lakh to ₹1.25 lakh,” he mentioned. “Overall, the Budget is good for the market,” he added, emphasizing that other factors could stabilize market sentiments soon.

Sitharaman’s Budget also outlined the fiscal health of the nation, with an estimated total expenditure of ₹48.21 lakh crore and net tax receipts of ₹25.83 lakh crore, contributing to a fiscal deficit set at 4.9% of GDP.

The discourse around the budget reflects a broader concern about how fiscal policies influence market dynamics. Traders and investors alike are bracing for a period of adjustment as they interpret the message sent from the government regarding taxation and economic strategies.

This Budget marks the first presentation under Prime Minister Narendra Modi’s administration during its third term, setting the stage for a critical evaluation of India’s economic trajectory amidst ongoing global financial uncertainty.

The day’s trading session underscored the delicate interplay between government policy announcements and market reactions, as investors sought to navigate a landscape increasingly shaped by revised fiscal policies.

As the fiscal year progresses, stakeholders from all sectors will be closely monitoring how these changes in taxation influence not only market performance but also broader economic indicators contributing to India’s growth story.