LTCG, STCG tax hike dents market sentiment? Sensex, Nifty50 tank after Nirmala Sitharaman's historic Budget speech

Indian equities post the Budget announcement slumped sharply, nevertheless, they recouped some of the day's losses. The market sentiment worsened as the Budget announced a hike in long-term gains on all financial and non-financial assets will henceforth attract a tax rate of 12.5 per cent from the 10 per cent earlier. Nifty at the last count traded 1.42 per cent or 348.85 points lower at 24,160.4 per cent, while the Sensex was down by 0.73 per cent or 589.54 points at 79,912.54. 

Also, STCG has been raised to 20 per cent on select assets, and while for other assets it will be taxed at the applicable slab rates.

The high beta Nifty Bank index traded weak by 0.85 per cent at 51,834.25. Meanwhile, the broader markets continued to correct with over 1 per cent fall.

Sectorally, it was a sea of red with only the Nifty FMCG seeing resilience at the last count.  Among sectors, oil and gas & metals emerged as the laggards with losses of up to 2 per cent.

Gold stocks got a fillip after the Budget 2024 reduced customs duty on gold to 6 per cent. Stocks from the pack including Titan, 

Dixon Technologies shares tumbled sharply and last was down over 3 per cent at Rs 10,942.8 as the company announced a reduction in customs duty on mobile phones, PCBA, and chargers, slashing the rate to 15%.

Agri stocks got a lift after the Budget earmarked a capital outlay of Rs 1.52 lakh crore for the agriculture and allied sector. Stocks including Kaveri Seed hit a fresh 52-week high as the centre announced that109 high-yielding as well as climate resilient varieties of 32 field and cultivation crops will be released for farmers in the ongoing fiscal year.

Amit Maheshwari, Tax Partner, AKM Global, a tax and consulting firm states, "The introduction of a uniform 12.5 per cent tax on long-term capital gains, regardless of asset type, promotes fairness and simplifies tax calculation. The 20% tax on short-term gains in specific financial assets may incentivize investments in such assets. This could potentially boost capital flows into the stock market and encourage a more stable investment environment. The increased exemption limit for long-term capital gains provides relief to individual investors and encourages savings. Overall, these changes reflect a strategic shift towards a more investor-friendly tax regime that fosters economic growth. 

Santosh Meena, Head of Research, Swastika Investmart held that the 2024 budget presents a mix of expected and surprising measures. While capital expenditure and the fiscal deficit target remain steady, significant changes to tax policies, particularly the increases in LTCG, STCG, and STT, are likely to impact market sentiment.

The introduction of new income tax benefits under the new tax regime provides some relief to taxpayers, potentially saving up to ₹17,500.

Overall, the budget emphasizes fiscal discipline and targeted support for specific sectors, but its reception by different market segments will vary, with potential underperformance in midcap and smallcap stocks due to valuation concerns. Moving forward, the market's attention will likely shift to earnings reports and global cues, she added.