- India’s benchmark equity indices hit a three-week low amid rumors of changes to capital gains taxes on equities and election jitters.
- Finance Minister Nirmala Sitharaman dismissed the rumors as “pure speculation”.
- The Nifty50 opened higher on Friday, reaching a record intraday high of 22,794.7 points, before ending the day’s trading in the red.
Amid election jitters and rumors of changes to capital gains taxes on equities, India’s benchmark equity indices hit a three-week low. The Nifty50, however, opened higher on Friday, reaching a record intraday high before ending in the red.
Market Anxiety and Election Jitters
Investors have been cautious, with some taking money off the table ahead of and during the ongoing national election. Over the past month, both the Nifty50 and the S&P BSE Sensex have remained almost unchanged, indicating a cautious sentiment among investors. However, profit-booking on Friday was mainly triggered by rumors of changes to the capital gains treatment of equities post the election results, further souring investor sentiment.
Capital Gains Tax Rumors
“On Friday, rumors of adverse STCG (short-term capital gains) tax changes post the formation of new government and of some cooling of the margin of victory by NDA alliance caused a minor selloff,” said Deepak Jasani, head of retail research at HDFC Securities Ltd. Currently, the short-term capital gains tax is 15% for equities held for less than 12 months, and long-term capital gains are taxed at 10%.
Market Performance and Future Outlook
The Nifty50 index settled lower by 0.8%, or 172.35 points, closing Friday’s trading at 22,475.85 points, while the S&P BSE Sensex ended 1% lower, down by 732.96 points, at 73,878.15 points. According to Gaurav Dua, senior vice-president and head, capital market strategy, Sharekhan by BNP Paribas, the markets seem to have slipped into a consolidation zone in the past couple of months. However, he pointed out that such declines are an opportunity to buy quality stocks at more reasonable prices.
Conclusion
While minor corrections ahead of the election results can be expected, any large correction would be a result of major disappointments over the quarterly results of key companies or because of adverse global developments. If the election outcome is on lines of expectations, then one can hope for a small rise followed by a bout of profit-taking till fresh policy announcements begin. However, if the margin of victory is much short of expectations, then the markets can witness a sell-off straightway.
