Mumbai: Sensex logged its biggest single-day decline in more than three years, as it nosedived nearly 1,000 points in a special trading session on Saturday, as market participants gave a big thumbs down to Finance Minister Nirmala Sitharamans Budget for 2020-21.Investors lost Rs 3.54 lakh crore as total market capitalisation of BSE-listed firms came down to Rs 152.97 lakh crore from Rs 156.50 lakh crore on Friday.Contrary to expectations, Budget did not offer any specific sectoral sops, and tax experts dubbed the new personal tax rules as complicated.
The much-awaited tweak to long-term capital gains tax did not find a mention, and while dividend distribution tax (DDT) was abolished, it will now be taxed in the hands of the recipients.Experts believed that the divestment target of Rs 2.1 lakh crore was also too optimistic.BSEs 30-share Sensex tumbled 2.43 per cent or 987.96 points to close at 39,735.53, while NSEs 50-share Nifty declined 2.66 per cent or 318.30 points to close at 11,643.80 points.
This was the worst close for both the indices since October 27, 2019.Here are the key factors which led to the meltdown in Indian market:Lack of sectoral sopsBudget didn't have specific sops for any sector, be it auto or real estate, as widely expected to create demand in the economy and lift it out of the current slowdown.
Vinod Nair, Head of Research at Geojit Financial Services, rated Budget below par, considering that the market had very high expectations from the government.
The support for the economy in terms of more spending was lacking in details, he said.Income-tax slab confusionThere was some disappointment over the removal of all the exemptions under Section 80C.
Also, by giving the option to choose between old and new income-tax formats, things have gotten more complicated, analysts said.
"While a new tax regime with lower tax rates has been introduced, the removal of all exemptions, including Section 80C exemptions, will water down its benefits.The option to choose between the old or new income-tax regimes will complicate filing tax returns, which was already a complicated process for individual taxpayers, said Ankur Choudhary, Co-Founder - CIO, Goalwise.com, a direct mutual fund investment platform.No LTCG revisitThe market was largely expecting the Finance Minister to make some tweaks to long-term capital gains tax (LTCG).
But there was no such announcement.
Investors were expecting the government to either abolish the tax or extend the tenure to two years from one at present.
The government re-introduced LTCG in 2018 after a gap of 14 years.
Analysts said it has caused significant confusion without yielding meaningful increase in tax collection.Divestment target a bit too highGiven that even this years divestment proceeds will be much less than the Budget target of Rs 1.05 lakh crore, the Rs 2.10 lakh crore target for FY21 a bit too high, even if one includes the LIC stake sale.
"LIC IPO might have been factored in, as the strategic divestment figures cannot go up so much, said Rushmik Oza of Kotak Securities.Higher dividend tax on recipientsFinance Minister Sitharaman announced the abolition of dividend distribution tax (DDT), which will lead to a Rs 25,000 crore in revenue hit.
But dividends will now be taxed in the hands of recipients.
Amar Ambani, Senior President and Research Head at YES Securities, said taxation of DDT in hands of investors at their I-T slab rates is a negative move for domestic investors.Market at a glanceBears were completely in charge on the bourses, as nearly three shares declined for every share that advanced on BSE.Broader market slumped in tandem with benchmarks.
BSE Midcap and BSE Smallcap indices dropped 2.21 per cent and 2.20 per cent, respectively.All, but three sectoral indices were in deep red.
BSE Capital goods index and BSE Industrials index fell the most, as they dropped 4.79 per cent and 3.94 per cent respectively.As many as 24 out of 30 Sensex stocks closed lower, with financials contributing the most to the losses.Mortgage lender HDFC (231.67 points) contributed the most to the Sensexs decline, as it shed 5.87 per cent.
Private lender ICICI Bank (128.56 points), followed next, as it shed 4.01 per cent.Cigarettes-to-hotels firm ITC was the top Sensex loser, and it tumbled nearly 7 per cent, after Sitharaman proposed to hike excise duty on cigarettes and other tobacco products.
Rival Godfrey Phillips also dropped 6.82 per cent.Shares of insurance companies plunged as there was no tax exemption for insurance policies.
In fact, the new tax regime takes away exemptions for insurance policies for taxpayers.Shares of ICICI Prudential Life plunged 10.93 per cent.
Rivals SBI Life and HDFC Life Insurance tumbled 10.02 per cent and 6.06 per cent respectively.Sitharaman said if taxpayers adopt the new tax regime, they will have to forego exemptions that they avail.
This also includes tax exemptions for insurance premiums.Shares of IDBI Bank bucked the trend and jumped 10.03 percent after the Finance Minister said the government will divest remaining stake in the lender.Analysts takeThe market has reacted negatively on two things; one is there was a widespread expectation that LTCG would be removed and that could actually boost the higher level of participation in the market.
Second, though they are keeping fiscal deficit at 3.8 per cent, the large proportion of the fiscal balance is also coming on account of Rs 2,10,000 crore of divestment proceeds they are taking which included of course, the LICs divestment proceeds.
We could see some kind of slip in that, -- A Balasubramanian, MD - CEO, Aditya Birla Sun Life AMCThe market saw a sharp sell-off, as expectations were sky-high.
The market expected an overhaul of personal income tax slabs, whereas we expected only a minor tweak, in a year that has seen flat tax revenue growth.
Market participants possibly also expected more measures to revive economic growth and ignored the containment of fiscal deficit in FY21 to only 3.5 per cent, Amar Ambani, Senior President and Head of Research, Institutional Equities.