For the equity markets, the Union Budget 2019-20 turned out to be a mixed bag. On one hand, investors cheered positives such as easier investment regime envisaged for foreign investors and recapitalisation of banks and, on the other, got spooked by a proposal that would force companies to dilute promoter holding at a time when markets are choppy.
Quite expectedly, the equity markets saw alternate bouts of gains and losses while Finance Minister Nirmala Sitharaman was presenting the budget.
After opening on a marginally positive note ahead of the Budget on Friday and staying in positive territory for some time, the benchmarks dipped into the red. Though managed to partially recover from the day’s low, they closed almost 1% lower.
The 30-share Sensex traded in a range of nearly 500 points during the day, before closing at 39,513.39, down 394.67 points or 0.99%. The broader Nifty closed at 11,811.15, down 135.60 points or 1.14%.
“The budget was a mixed bag,” said Sanjeev Hota, Head of Research, Sharekhan. “While on the positive side, there was healthy recapitalisation of banks and easing liquidity for NBFCs coupled with continued focus on infrastructure development, reviving private investments and ease of doing business... on the flip side [there was] lack of any major announcements for reviving consumptions demand and rural distress, which was widely anticipated by the market,” added Mr. Hota.
According to dealers, investors got spooked by the proposal that minimum public shareholding would be increased from the current 25% to 35% for all listed entities, that could force companies to sell shares in a choppy market.
The BSE PSU and BSE CPSE indices lost over 1% soon after the Minister announced the proposal. Multinational companies such as Siemens and ABB, both lost over 6% each, with other listed MNCs such as Vedanta, Schaeffler India, Bosch, Castrol India, Honeywell Automation and Kansai Nerolac also closing in the red.
Investors were also spooked by the buyback tax introduced by the government, which could potentially affect companies’ plan to reward shareholders by way of buying back their shares from the open market.
“Exemption enjoyed by the shareholder of a listed company on income arising on account of buy back of shares has been withdrawn with effect from July 5, 2019,” said Ashok Shah, Partner, NA Shah Associates LLP.
“Effect of this provision is that listed company whose buy back is still open today, would be taxed at the rate of 20% plus surcharge and cess on the amount of consideration paid less issue price of such shares. This would impact buy back by all listed companies in future.”
Meanwhile, the overall market breadth was also very weak with more than 1,700 stocks losing ground on BSE, as against 770 gainers. The broader indices such as BSE Midcap and BSE Smallcap lost more than the benchmarks, shedding over 1.3% each. Further, provisional data showed that foreign portfolio investors were net sellers at nearly ₹90 crore on Friday, even as the government proposed streamlining the KYC regime for FPIs to make it more investor-friendly.
Going ahead, market participants believe that the stocks would trade weak though they add that investors could use the opportunity to build positions in good quality stocks with a long term horizon.
“Markets will trade little weak in the near future till, government does not show the road map of growth and execution of the same. If markets weaken in near future that will be an opportunity to increase equity exposure as long term looks promising,” said Motilal Oswal, Chairman and Managing Director, Motilal Oswal Financial Services.
