The Indian stock market experienced significant volatility on July 23, 2024, following Finance Minister Nirmala Sitharaman’s announcement of a hike in the Securities Transaction Tax (STT) on futures and options (F&O) securities. The 30-share BSE Sensex and the NSE Nifty both saw sharp declines, despite initial gains as the Finance Minister began presenting the Budget for 2024-25. In addition to the STT hike, the Budget also included a raise in the capital gains exemption limit on certain financial assets to Rs 1.25 lakh per year. This blog delves into the market’s reaction, key Budget announcements, and their potential impact.
Market Reaction: Sensex and Nifty Tumble
The BSE Sensex jumped as soon as Finance Minister Nirmala Sitharaman began her Budget speech. However, within minutes, the market sentiment turned negative, and the Sensex plummeted 1,266.17 points, closing at 79,235.91 during the afternoon trade. Similarly, the NSE Nifty initially ticked higher but soon faced volatile trends, eventually tanking 435.05 points to settle at 24,074.20.
In early trade, the Sensex had climbed 264.33 points to 80,766.41, while the Nifty had risen by 73.3 points to 24,582.55. The sudden reversal highlights the market’s sensitivity to fiscal policy changes, particularly those affecting transaction costs in the derivatives segment.
Key Budget Announcements: STT Hike and Capital Gains Exemption
Hike in STT on F&O Securities
Finance Minister Nirmala Sitharaman announced a hike in the Securities Transaction Tax on F&O securities. The STT on these transactions has been increased by 0.02 percent and 0.1 percent, respectively. This move is expected to increase the cost of trading in the derivatives market, potentially reducing trading volumes and liquidity.
Increase in Capital Gains Exemption Limit
To provide relief to the middle and upper-middle class, the government plans to raise the capital gains exemption limit on certain financial assets to Rs 1.25 lakh per year. This measure aims to encourage investment in financial assets by offering tax benefits to a broader segment of the population.
Economic Outlook: Growth, Inflation, and Policy Stability
In her Budget speech, Sitharaman emphasized India’s robust economic growth amidst global policy uncertainties. She highlighted that India’s inflation remains stable and is moving towards the target of 4 percent, with core inflation at 3.1 percent. These indicators suggest a stable macroeconomic environment, which is crucial for sustained growth and investor confidence.
Sectoral Impact: Major Gainers and Laggards
The market’s reaction to the Budget announcements was not uniform across sectors. Among the Sensex pack, Larsen & Toubro, Bajaj Finance, Power Grid, Reliance Industries, State Bank of India, and Bajaj Finserv were the major laggards, witnessing significant declines. On the other hand, Titan, ITC, Hindustan Unilever, and Adani Ports emerged as the biggest gainers, reflecting sector-specific investor sentiment and resilience.
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