On Wednesday, when the finance minister underwhelmed the stock markets with his timid budget proposals, the Sensex duly crashed by 540 points.
The markets were anyway looking for an excuse to sell after the fall in China
MUMBAI: You need not blame it all on P Chidambaram. On Wednesday, when the finance minister underwhelmed the stock markets with his timid budget proposals, the BSE Sensex duly crashed by 540 points. But truth be told, the markets were actually looking for an excuse to decline and fall since February 8. Since then, they have tumbled 11.7%, sensing a global weakness ahead. Consider the signs:
1. On Tuesday, the Sensex tumbled 170 points. This followed a weakness in the Asian markets after the Chinese index, the Shanghai Composite, tumbled 8.84% on concerns that the government would crack down on illegal investments. Though the Shanghai Composite gained 3.5% on Wednesday, other Asian markets went weak in the knees after that.
2. As part of a general sell-off being witnessed across emerging market equities, foreign institutional investors sold Indian equity worth Rs1,932 crore on Wednesday as per provisional figures available on the NSE website. On Tuesday too, they had been net sellers by Rs415 crore.
3. Chidambaram’s budget has a direct impact only on cement and IT stocks. The finance minister said companies charging more than Rs190 per bag (50kg) of cement would pay a higher excise of Rs600 per tonne compared to Rs400 per tonne now. Cement stocks were down 5.6% on an average.
Cement prices in most places are ruling around Rs210. This effectively means that cement companies will either have to take a hit on their bottom lines or pass the duty hike on to consumers. Stocks in the construction and infrastructure sectors fell by an average of 5.92%.
4. The budget announcement on making the minimum alternate tax (MAT) applicable to IT companies weighed heavily on the big stocks that make up the indices. The BSE IT index was down 5.85%. While many software companies pay some tax, it is the income generated on offshore work that has been exempt so far. This will change. By paying MAT at 11.2%, IT companies’ bottom lines will be hit by 3-5%.
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
)
){kind=small}
){kind=small}
)
)
)
)
)
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}