Indian stock market witnessed a sharp correction on Monday with the benchmark indices – S&P BSE Sensex and Nifty50 tumbling over 2 per cent each. The indices saw their biggest one-day fall in four years amid across-the-board sell-off.
The fall comes on the back of a number of proposals in Budget 2019 announced last week, such as increase in minimum public shareholding, 20 per cent tax on share buybacks and steep increase in tax of ultra-rich segment.
Besides, weak global cues, too, dented sentiment and nudged investors to press panic button and rush to safe havens.
The S&P BSE Sensex plunged as much as 908 points or 2.29 per cent to hit a low of 38,605 in intra-day trade before ending at 38,721, down 793 points or 2 per cent. The 50-share Nifty slipped 253 points, or 2.14 per cent, to settle at 11,559. The index had slipped as much as 288 points, or 2.43 per cent, during the session.
“The market fall today was on account of concerns over future fund flow into the secondary market and scam revelation at Punjab National Bank (PNB). Hike in surcharge in the Budget will have an adverse impact on high-end consumption, as well as reduce the investible surplus of high-income individuals, whose money was the mainstay of mutual funds, PMSes and the midcap segment,” said Amar Ambani, president and head of research at YES Securities.
Volatility index, India VIX, rallied over 7 per cent to 14. The two-day slide that began on Friday last week has washed away Rs 4.95 trillion in market-capitalisation (market-cap).
Here's a look at the biggest factors that dragged the market lower on Monday:
PROPOSAL TO REDUCE PROMOTER SHAREHOLDING
Among the many negatives that weighed on investor sentiment, the biggest was the proposal to increase the minimum public shareholding limit to 35 per cent, thereby reducing the promoter holding to 65 per cent in the listed companies. Currently, there are around 1,174 listed companies where promoter shareholding is above 65 per cent. This means the total quantum of sale that needs to be done by these companies is estimated to be around whopping amount of Rs 3,87,000 crore, says research by Centrum Broking. READ MORE HERE
With the clear evidence of low-risk appetite amid huge wealth destruction, analysts say, investors are likely to be on the defensive and hence, stay away from the offerings by these companies.
HIGHER TAXATION FOR FPIs
The government's proposal to raise the tax burden on the ultra-rich could also affect about 2,000 foreign funds that are legally equivalent to associations of persons (AOP), a class of income earners required to pay more taxes after new liability slabs were created in the federal budget, said a report by The Economic Times.
Giving the reference of LTCG tax, which created more issue for the market than creating a tax for the government, Ambareesh Baliga, independent market expert says: "Extra taxes imposed by the government may not serve the purpose but on the contrary will spoil the market mood and destroy the wealth. Wealth destruction also means no capital formation and if there is no capital formation, it will be detrimental for the overall economy."
Morgan Stanley cut its global equities allocation to the lowest in five years, and downgraded its investment recommendation to underweight, saying the outlook for stocks over the next three months looks particularly poor. "We see a market too sanguine about what lower bond yields may be suggesting – a worsening growth outlook,” they wrote. “Continued deterioration in global PMIs suggests a macro environment with plenty of downside risks," Bloomberg reported quoting the brokerage firm, as saying. READ MORE ON IT HERE