The benchmark indices logged their worst Budget-day performance in 11 years (since 2009), as investors felt the measures announced by Finance Minister Nirmala Sitharaman would do little to stimulate growth and help stressed sectors.
The Sensex ended 988 points or 2.43 per cent lower at 39,736, while the Nifty dropped 300 points or 2.51 per cent to close at 11,662. This was the largest single-day fall in over three years. All the BSE sectoral indices declined, with the exception of tech stocks.
Concerns over widening fiscal deficit and the Rs 2.1-trillion disinvestment target set for the next fiscal year also weighed on sentiment. Investors feared the steep target and proposed mega initial public offering (IPO) of LIC could crowd out the secondary markets. Besides, the lack of relief surrounding long-term capital gains (LTCG) tax and securities transaction tax (STT), dampened sentiment.
The Sensex swung 1,275 points, or 3.2 per cent, intra-day as investors priced in the various measures announced. The volatility was higher compared to the previous few Budgets.
“Expectations were very high, and therefore the market is a bit disappointed,” said Nirmal Jain, founder and chairman, IIFL.
“Given the state of the economy, the Street was expecting some path-breaking initiative to boost domestic demand through meaningful fiscal stimulus,” added Jaideep Arora, CEO of Sharekhan by BNP Paribas.
In the run-up to the Budget, the market had scaled fresh highs before losing steam due to Coronavirus.
Realty and capital goods stocks declined the most, with their sectoral indices dropping 7.8 per cent and 4.8 per cent, respectively.
Investors hoping for relief in the non-banking financial companies (NBFCs), real estate, and infrastructure sectors were left disappointed.
“Given how deeply distressed the NBFC system is, people are little spooked that there was nothing for the sector, or even for state-owned banks. A combination of unrealistic expectations and lack of clarity on how the mess in the financial system will be fixed led to the decline,” said Saurabh Mukherjhea, founder of Marcellus Investment Managers.
Further, all listed insurance players took a hit as the income tax changes proposed in the Budget sparked fears of de-rating. Shares of Max Financial Services, ICICI Prudential Life Insurance, and SBI Life Insurance dropped above 10 per cent.
Among Sensex components, ITC dropped the most at 7 per cent, given the proposed increase in excise duty on cigarettes. TCS and HUL were the best-performing Sensex stocks, gaining 4 per cent and 2 per cent, respectively. Market players said the move to cut dividend distribution tax (DDT) would benefit cash-rich firms.
On an overall basis, 1,750 stocks declined and 589 advanced on the BSE. FPIs on Saturday sold shares worth Rs 1,200 crore, extending their weekly selling to nearly Rs 7,200 crore. Buying by domestic institutional investors was muted.
Market players said the Budget offers slew of incentives to FPIs, including removal of DDT and lower withholding tax. They said overseas investor sentiment would improve once global risk situation improves.
Experts said the impact of the Budget could play out on Monday, when normal trading session resumes. They said certain large FPIs didn’t participate on Saturday due to their holidays.
Once the Budget impact gets fully priced-in, market direction will be dictated by corporate results and global events.
“There is not much that can revive the economy in the next few quarters. With these measures, I am not sure if India can achieve the real GDP growth rate of 6 per cent in FY21. No announcement on LTCG is another disappointment. The Budget has failed to lift sentiment and hence, the market will have to take a cue from global factors and earnings seasons for its next movement,” said Sunil Damania, chief information officer of MarketsMojo.com.