Indian Stock Markets Plunge as Government Increases Taxes; Consumer Stocks See Gains
News Mania Desk/Agnibeena Ghosh/23rd July 2024
On July 23, 2024, Indian stock markets experienced a significant drop in response to the government’s announcement of higher taxes on capital gains and derivatives trading. The NSE Nifty 50 and the S&P BSE Sensex both fell by approximately 1%, with the Nifty 50 trading at 24,225 and the Sensex at 80,024. In addition to the stock market declines, the Indian rupee hit a record low against the US dollar, reaching 83.69.
The sharp market reaction followed Finance Minister Nirmala Sitharaman’s presentation of the Union Budget for 2024-25. Sitharaman proposed increasing the securities transaction tax (STT) on futures and options, raising it to 0.02% and 0.1%, respectively. This change affects the cost of trading in these segments, with the previous rates set at 0.0125% for futures and varying rates for options transactions.
The STT adjustment is part of a broader tax overhaul that includes a hike in the long-term capital gains (LTCG) tax from 10% to 12.5% on all financial and non-financial assets. Short-term capital gains on certain financial assets will now face a tax rate of 20%, while other assets will retain their current tax rates. These changes have been made in response to concerns about the rising volumes in derivatives trading and its impact on market stability.
While the broader market faced declines, certain sectors showed resilience. Consumer stocks were among the few to register gains, climbing by 2% following the government’s announcement of a substantial allocation of 1.52 trillion rupees for agriculture and related sectors. This funding boost led to notable increases in agriculture-related stocks such as Kaveri Seeds, Mangalam Seed, and Dhanuka Agritech, which saw their shares rise between 4.4% and 10.5%. Similarly, fisheries stocks like Avanti Feeds and Coastal Corp experienced gains of 4.3% and 2.3%, respectively, due to the financial support promised for the sector.
In contrast, capital goods stocks were among the biggest losers. Companies like Larsen & Toubro, ABB India, Thermax, and Siemens saw their shares drop between 1.5% and 5%. The decline in these stocks was attributed to the government’s decision not to increase infrastructure spending, which was seen as a missed opportunity to stimulate growth in the sector. Larsen & Toubro, in particular, was the top loser on the Nifty 50 index.
The stock market’s reaction was further compounded by a surge in the basic customs duty on telecom equipment, which led to declines in telecom infrastructure stocks. The government’s proposed increase from 10% to 15% resulted in over a 4% drop in shares of telecom companies such as HFCL, Vodafone Idea, and Tejas Networks.
Gold prices also took a hit, falling by 5% to Rs 69,016 per 10 grams, following the rise in securities transaction tax on futures and options trading, which influenced market sentiment towards commodities.
Overall, the Indian stock markets faced a turbulent day, with significant declines across various sectors, except for consumer and agriculture-related stocks, which benefited from specific budget allocations. The rupee’s decline and the fluctuating gold prices added to the financial market’s volatility, highlighting the broad impact of the government’s fiscal policy changes on investor sentiment and market performance.
