Investor Wealth Plummets By Rs 3.46 Lakh Crore As Markets React To Budget 2020

Investor wealth plummeted by Rs 3.46 lakh crore on Saturday as equity markets came crashing after the Union Budget for 2020-21 failed to live up to expectations. The massive sell-off in equity market wiped out investor wealth, which fell by Rs 3,46,256.76 crore to Rs 1,53,04,724.97 crore on the BSE.

Market capitalisation of BSE-listed firms plunged as BSE Sensex plummeted 987.96 points to close below the key 40,000-mark. It closed at 39,735.53. This was the benchmark's biggest drop since October 24, 2008, when it had plummeted 1,070.63 points, and the fourth biggest fall overall.

"The lack of major growth boosting measures in itself is negative for the equity market. The new income tax regime would also be negative for tax exempt equity savings schemes. Recasting of dividend taxation norms also seem to be on the balance negative for most domestic equity investors. Overall, the budget seems to be negative for the equity market," Anand Rathi Shares & Stock Brokers Chief Economist and Executive Director Sujan Hajra said.

Motilal Oswal Financial Services Managing Director & CEO Motilal Oswal said, "Markets have taken a cautious view on the Budget, the tax rate cut and DDT (Dividend Distribution Tax) benefit will help economy to grow and corporate payouts to increase. At these levels one should buy for long term."

The government on Saturday proposed to remove DDT on companies, and henceforth the tax will be shifted to recipients at the applicable rate.

Currently, companies are required to pay DDT on the dividend paid to shareholders at the rate of 15 per cent plus applicable surcharge and cess, in addition to the tax payable by the company on its profits.

"The budget is good on intent. However, the key is efficient execution in a time-bound manner. There are many positives to simplify things and encourage entrepreneurs but again, key will be execution in a time-bound manner. Intent needs to be converted into implementation," Nilesh Shah, MD & CEO, Kotak Mahindra Asset Management Company said.

The finance minister said that improvement in revenue generation gives hopes of lowering fiscal deficit to 3.5 per cent of GDP in the next fiscal from 3.8 per cent in the current.

From the 30-share pack on BSE, 24 companies suffered losses, led by ITC, Larsen & Toubro, HDFC and State Bank of India.

According to Krishna Kumar Karwa, Managing Director - Emkay Global Financial Services, investors are disappointed with no relief on long term capital gains (LTCG) tax and lack of big bang sectoral stimulus.

"The removal of Dividend Distribution Tax seen as a continuation of earlier step of reducing corporate tax is well appreciated and sends the right signals to local and global investors," he added.

At the BSE, 1,724 scrips declined, while 611 advanced and 126 remained unchanged.

In the broader market, the BSE SmallCap index fell 2.20 per cent, while BSE MidCap index declined 2.21 per cent.

"The markets have reacted negatively to the Budget, mainly due to some disappointments on account of non-abolition of LTCG, confusion about the impact of DDT removal and taxing dividends in the hands of recipients. Also the alternative provided to individuals for lower rate of tax, provided they do not claim exemptions/deductions, did not seem too attractive," HDFC Securities MD & CEO Dhiraj Relli said.

"The alternative tax system discourages investments which market participants do not seem to be comfortable with. The overhang of coronavirus outbreak on our markets also got magnified in the later half of the session. Foreign investors will look for signs of revival of growth before they commit funds," he said.