With the government announcing what does it wants to do for the next year, the budget has played a tremendous role in the financial year. A budget is the government’s statement of policy for the next financial year.
However, the budget statement announcements affect the stock market of which that are impacted favourably or are in the relevance to the policies of the government. The impacts can be seen as volatility changes.
Recently when the Finance Minister of India Nirmala Sitharaman presented her first union budget for the second term of Modi government, the market saw a tremendous fall. With the inception of new policies, procedures and modification to the previous budget, the market has been seen a pleasingly dull.
Indian benchmark index Sensex dipped over 400 points intraday while NSE Nifty tumbled below 11,900 on Friday. In the D-Street, investors believe that Nirmala Sitharaman failed to impress the market. 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.
There are several factors that spread negativity in the market.
- Import duty on gold hiked to 12.5%
The provisions to raise import duty on gold and other precious metals to 12.5 per cent, from current 10 per cent has been imposed in the Union Budget of 2019. Reportedly, India is the largest gold importer in the world. In the year 2018-19, India imported gold worth $32.8 billion. In addition, the hike in the import duty of the gold will make the gold costlier. Adding to which, the shares of jewellery and gems companies – PC Jeweller, MMTC, Tribhovandas Bhimji Zaveri and Thangamayil Jewellery stocks fell between 2-5 per cent.
- 20% Buyback Tax on Listed Companies
Finance Minister Nirmala Sitharaman’s proposal to extend the buyback tax at 20 per cent to listed companies comes as shut to the investor’s independence. The shareholder of the listed company will no longer be able to enjoy the exemption on income arising on account of buyback of shares. Under section 115QA, the listed companies will have to pay tax on buyback of shares at 20 per cent plus applicable surcharge and cess. Therefore, the move is likely to impact buyback by all listed companies in future.
- Suggestion to reduce promoter’s shareholding to 65%
In the Nirmala Sitharaman’s maiden budget, FM proposed to reduce the proportionate of the promoter’s shareholding from the current level of 75 per cent to 65 per cent. Due to the reduction in the promoter’s shareholding, there would be an increase in the public shareholding for listed companies from the current level of 25 per cent to 35 per cent. This would lead to the delisting of many MNC firms. There are 1,174 listed companies where promoters holding is over 65 per cent stake. Therefore, if SEBI follows the government proposal, many MNCs and IT companies with high promoter shareholding will have to meet the requirement.
- No Change in LTCG Tax on Equity
The investor’s expectations on rolling back long term capital gains (LTCG) on equity investments in Budget 2018 were put to the stop by Nirmala Sitharaman. According to the experts, if capital gains tax was withdrawn, it would probably have helped in channelizing more funds to markets either directly or through mutual funds. Plus, it can bring firmness in the market while making the investments in the stock market and mutual funds more lucrative and valuable for the investors.
- Surcharge on Income Tax for Super Rich
Sitharaman’s proposal to increase the surcharge on super rich has left the class disappointed as net individuals with a taxable income of Rs 2 crore. For individuals in the income bracket of Rs 2-5 crore, the applicable surcharge will be 3 per cent whereas, those with earnings above 5 crores are looking at a surcharge of 7 per cent. For other categories, tax rates and income slabs remain constant and firm.
