Why stock market gave a thumbs down to Union Budget

Indian benchmark index Sensex tumbled over 400 points intraday, while NSE Nifty slipped below 11,900 on Friday after Finance Minister Nirmala Sitharaman failed to impress investors on Dalal Street. After a highly volatile session, the 30-share barometer Sensex closed 394.67 points, or 0.99 per cent, lower at 39,513.39, while the 50-share NSE Nifty fell 135.60 points, or 1.14 per cent, to settle at 11,811.15.

The proposal of raising public shareholding limit and extending buyback tax on listed firms spooked investors sentiment. After the strong bullish push in early session, market indices Sensex and Nifty fell sharply for the first time in last five consecutive sessions, led by sharp sell-off across metal and realty space.

Here are top five factors that injected negativity into the stock market:

Buyback tax of 20% on listed companies: Finance Minister Nirmala Sitharaman proposed to extend the buyback tax at 20 percent to listed companies as well. This means, shareholder of a listed company will no longer enjoy exemption on income arising on account of buyback of shares.  Adding to the woes, a listed company will now have to pay tax on buyback under section 115QA at the rate of 20 per cent plus applicable surcharge and cess. The move is likely to impact buyback by all listed companies in future.

Import duty on gold hiked to 12.5%: Budget 2019 made provisions to raise import duty on gold and precious metals to 12.5 per cent, from current level of 10 per cent. It is to be noted that India is one of the largest gold importers in the world. In 2018-19, India imported gold worth $32.8 billion. The hike in import duty is likely to make gold costlier. Reacting to the news, shares of gems and jewellery companies fell sharply with PC Jeweller, MMTC, Tribhovandas Bhimji Zaveri and Thangamayil Jewellery stocks falling between 2-5 per cent.

Also Read: Union Budget 2019: PC Jeweller, Titan, MMTC stocks fall on hike in import duty on gold

No change in LTCG tax on equity: The budget failed to impress stock market investors as they were expecting Nirmala Sitharaman to roll back long term capital gains (LTCG) tax on equity investments in Budget 2018. According to experts, withdrawal of capital gains tax would have helped in channelizsing more funds to markets either directly or through mutual funds. It can help bring stability in the market while making the investments in stock market and mutual funds more lucrative and beneficial for the investors.

Proposal to reduce promoter shareholdings to 65%: Presenting her maiden budget, FM Sitharaman proposed to reduce the maximum promoter shareholding from the current level of 75 per cent to 65 per cent. This means that the minimum public shareholding for listed companies has to be increased from current level of 25 per cent to 35 per cent, which could lead to the delisting of many MNC firms. If Sebi follows the government proposal, many MNCs and IT companies with high promoter shareholding will have to meet the requirement. There are 1,174 listed companies where promoters holding are over 65 per cent stake.

Surcharge on income tax for super rich: Sitharaman has left India's super rich class disappointed as she proposed to increase surcharge on high net individuals with a taxable income of over Rs 2 crore. For individuals in the income bracket of Rs 2-5 crore, the applicable surcharge will be 3 per cent while those earning above Rs 5 crore are looking at a surcharge of 7 per cent. For other categories of income payers, the tax rates and slabs remain unchanged.

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