After 2 days of Budget 2018, Sensex sheds 1,400 points: 5 points you should know

Union finance minister Arun Jaitley tabled the Budget 2018 on Thursday, and just after it, the benchmark BSE Sensex shedded as close to 1400 points in a time span of two days. 

Since the Budget announcement, the Indian markets are witnessing a bear phase. Investors wealth eroded by over Rs 4.6 lakh crore amid massive selling in the stock market where the BSE benchmark index plummeted 840 points. 

With investors worries constantly rising over Finance Minister Arun Jaitley bringing LTCG (Long-Term Capital Gain) on equities over Rs 1 lakh under the tax net, Finance Secretary Hasmukh Adhia has blamed global market sell-off for the bloodshed in Indian markets dismaying the LTCG tax effect.

Below we have listed reasons behind the ongoing bloodshed on Dalal street. 

1. Global cues

The main worry behind the nosedive are the global cues. Earlier on Friday last week, on the worries about the impact of a tightening job market on the prospects for inflation and a surge in bond yields sent investors fleeing equities with the Dow Jones Industrials Average plunging almost 666 points, its biggest single-day percentage loss in 20 months, Reuters said in a report. 

On Monday too, Asian markets were lower following a sharp decline in US stocks. US stocks fell sharply last Friday on surging bond yields after a stronger-than-expected jobs report.

Foreign portfolio investors (FPIs) bought shares worth Rs 950.00 crore on net basis while domestic institutional investors (DIIs) sold equities to the tune of Rs 508.78 crore last Friday, provisional data showed.    

2. LTCG worries

The reintroduction of long term capital gains (LTCG) in Budget 2018-19 were also sending jitters among the investors. The Finance Bill, 2018 proposes to provide for a new long-term capital gains tax regime for the following assets–

1) Equity Shares in a company listed on a recognized stock exchange

2) Unit of an equity oriented fund

3) Unit of a business trust

Finance Minister Arun Jaitley introduced a tax on LTCG (Long-Term Capital Gain) on shares over Rs 1 lakh at 10%.

However, The Central Board of Direct Taxes (CBDT) has clarified the various issues related to the proposed new tax regime for the taxation of long-term capital gains as FAQ.

CBDT has clarified that the benefit of inflation indexation of the cost of acquisition would not be available for computing long-term capital gains under the new tax regime.The tax will be levied only upon transfer of the long-term capital asset on or after 1st April, 2018.

3. Fisacl Deficit

In Budget 22018-19, the Finance Minister fixed the higher fiscal deficit target for the financial year 2018-2019 at 3.3% as against the target of 3.2% in the current financial year. 

The new target came in wake of shortfall in non-tax revenue due to deferment of spectrum auction. FM Jaitley also revised the fiscal deficit for the fiscal year for 2017-2018 upward to 3.5% as against targeted 3.2%, which in absolute terms was about Rs 5.95 lakh crore. He said that the government will receive the GST revenue for 11 months, which will have the fiscal impact. 

The finance minister, in the Budget, projected a higher fiscal deficit of 3.5% of GDP for 2017-18, as against the target of 3.2%. The fiscal deficit is the amount of excess spending over revenue. The government has raised spending by 10% (to Rs 24.42 lakh crore) in this Budget, and postponed the deficit target.

Revenue secretary Hasmukh Adhia, said, "GST revenue collection will fall short by Rs 50,000 crore."

On Monday, The benchmark BSE Sensex dropped by 342 points or 0.98 per cent in late morning deals as investor sentiment weighed down by a sell off in global markets. 

Investor caution continued after fear that the RBI may raise interest rates this week to rein in inflation concerns. Capital Goods, Bank, Metal, Industrial, Finance, Basic Material, Consumer Durables, Realty and Auto sectors witnessed selling. Telecom segment, however, witnessed good buying interest.