InvestorQ : Why did the markets react so negatively with the Sensex correcting nearly 1000 points after the budget announcement?
Priyanka N made post

Why did the markets react so negatively with the Sensex correcting nearly 1000 points after the budget announcement?

K V RAO answered.
2 years ago

A quick post-budget analysis: Markets spooked. Reason: Big investors, traders as also HNIs (high net worth individuals) disappointed.

On a deeper analysis, we find that Madam didn't harm them. She favored only the middle cl*** ( quite understandable when we know elections are lined up: Delhi, West Bengal). Big investors and traders got affected (emotionally and not factually).

Not factually because the value of their holdings is intact. Very interestingly, the FM wanted market watchers to wait till Monday. So it's likely to bounce back. Wait for pleasant surprises.


NISHA Nayak answered.
2 years ago

In my view, there were multiple reasons for the indices to correct so sharply. The Nifty fell by 300 points and the Sensex fell by 1000 points. Let me outline some reasons.

· The budget’s refusal to change the status quo on LTCG tax was a disappointment. Markets were expecting that the LTCG tax would go away and when that did not happen it was a huge disappointment.

· The DDT was again a disappointment because it was replaced by the new dividend tax scheme where individuals have to treat dividends as other income and pay tax at the peak rates. This could be a disincentive to companies to pay dividends.

· The fiscal deficit at 3.8% was slightly worrying as it was expected that the government would not use the full leeway of 50 bps but it has used it for the next two years. This could impact sovereign ratings and also hit bond yields and borrowing costs.

· The LIC divestment is a big story but it is fraught with risks. LIC has seen a sharp rise in NPAs and that is likely to be a dampener. Also, the divestment target of Rs.210,000 crore looks aggressive but it is largely betting on the success of LIC divestment. That is something that has made the markets slightly nervous.

· Above all, the markets were expecting some big concrete announcements in terms of infrastructure investment and also in terms of putting more money in the hands of the public. The markets were disappointed on both fronts and hence the huge crack in the markets.

This is a short term reaction but we will have to wait out the next few days.