Stock Market Crash: PNB-Bhushan Power, FII, Budget connection to Sensex, Nifty blood bath
Modi 2.0 government levying surcharge of an additional 3 per cent on the trusts investing in Indian equities on their STCG hasn't gone down well among the FIIs.
Stock markets continued to bleed for the third straight trading session post-budget 2019 presentation on Friday. The BSE Sensex lost 228 points to 38,491 levels while the Nifty 50 index 76 points to 11,481 levels. Bank Nifty index went southward 245 points to 30,358 levels. The stock market experts are of the opinion that Modi 2.0 government levying surcharge of an additional 3 per cent on the trusts investing in the Indian equities on their Small Term Capital Gains (STCG) making the net charges to the tune of near 21 per cent from existing 18 per cent (approx.), hasn't gone down well among the FIIs, who invest through trust in the Indian equity markets. Apart from that the new PNB scam emerging at the same time has also sparked speculation among the market investors about the return of Nirav Modi type big banking fraud. PNB reported over Rs 3800 crore fraud by Bhushan Power & Steel. All of this has worked as salt added in Dalal Street's wounds.
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Speaking on the recent post-budget blood bath at Dalal Street, Prakash Pandey, Head of Research at Fairwealth Securities said, "In the budget 2019, Modi 2.0 Government has imposed an additional 3 per cent surcharge on the STCG for trusts investing in the Indian equity markets. As Foreign Institutional Investors (FIIs) invest through trusts, they are showing their anger which is burning both domestic and retail investors of the Indian stock market."
Amar Ambani, President & Research Head at YES Securities said, “The market fall today was on account of concerns over future fund flow into the secondary market and scam revelation at PNB." Asked about the reasons that led to such a huge crash by Sensex, Nifty, Bank Nifty and other Indian indices, Amar Ambani listed down the following reasons:
1] 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;
2] The increased surcharge also has a bearing on FPIs coming in through the Trust route and taxation of Cat-3 AIFs. This potentially reduces the post-tax attractiveness of India, vis-à-vis other markets, where such a high rate doesn’t exist;
3] Fears around squeeze in secondary market liquidity is also due to proposed higher public shareholding norms. I expect and hope for clarification in some form, with regards to the surcharge and public shareholding in the coming days;
4] News of Rs38bn fraud at PNB, brought back memories of the Nirav Modi scam and raised fresh worries of more such skeletons in the closet, leading to falling in PNB stock as well as in other public-sector banks; and
5] Fears of a pro-longed slowdown in consumption also caused sell-off in Autos and NBFCs, linked to consumption story.
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