No capital gains cheer, followed by FOMC, Adani rout fear

She announced that it would be considered the default regime henceforth, and the option to remain with the old regime would continue.

Adani Data Networks gets unified licence for telecom services in six circles financial express
There is an attempt to make the new scheme more attractive by extending standard deduction hitherto available only in legacy provisions. (File)

By Siddhant Mishra

Indian equities witnessed a see-saw trade, zooming over 1.5% each before giving up the gains. According to market analysts, while the status quo in capital gains tax sent the indices zooming, nervousness ahead of the Federal Open Market Committee  (FOMC) meet and rout in Adani group stocks led to negativity.

The Sensex gained as much as 2.05% or 1,223 points and fell as much as 733 points or 1.23%, closing at 59,708.08. It hit a high of 60,773 and low of 58,816.84 during the session. On the other hand, the broader Nifty50 rose as much as 310 points or 1.76% and fell as much as 308.75 points or 1.75%, closing at 17,616.30. It touched a high 17,972 and low of 17,353 during the day. Investors were keenly watching out for any potential raise in capital gains tax, but with the subject not finding any mention, there was cheer.

Independent market analyst Ambareesh Baliga said the decision not to tinker with capital gains tax brought enthusiasm, which led to an initial surge before profit-booking kicked in. Agreed Ashish Kumar Chauhan, MD and CEO of NSE, saying: “Before the Budget was presented, investors were worried about a rise in capital gains tax. No change in the same created a positive reaction. Overall, this was a very positive Budget for the markets.”

However, the latter half of the day saw the indices give up a major part of the gains. Insurance firms were among the biggest losers, with HDFC Life and ICICI Prudential falling over 10%, and LIC and SBI Life shedding over 9%, respectively, on the BSE. This was in the aftermath of FM Nirmala Sitharaman’s proposal to limit tax exemption from proceeds of high-value policies. From FY24 onwards, earnings from policies charging an aggregate premium of above `5 lakh will not be exempted from tax.Sitharaman proposed changes to tax brackets and lower rates to make the new regime more attractive.

She announced that it would be considered the default regime henceforth, and the option to remain with the old regime would continue.

According to market analysts, the push towards the new tax regime will likely make investments in tax-saving insurance policies less attractive. Tax exemptions have enabled insurers to aggressively push policies in the past, but customers may now look for alternatives with better returns.    

“A well-tuned Budget with a strong emphasis on consumption and capex has lifted optimism in the market. However, volatility sparked in the latter half, as focus shifted back to the Adani saga and FOMC meeting. Life insurance players witnessed heavy selling as the Budget pushed for the new tax regime, making insurance products less appealing as a tax-saving tool,” Vinod Nair, Head of Research at Geojit Financial Services.

Interestingly, the early rally by banking stocks also fizzled out, with PSU banks taking a hit in the latter half of the session. The Bank Nifty declined 0.35% to close at 40,513. The Nifty PSU Bank index shed 5.7%, with Bank of Baroda the biggest laggard, falling over 8%. On the other hand, the private banks were a mixed bag, with only HDFC Bank, ICICI Bank and Kotak Bank ending in the green.

“The announcement regarding the Mahila Samman Savings Certificate offering 7.5% could be a possible reason. However, with banks also offering similar deposit rates, it is hard to see a major impact. Another reason for PSU banks taking a hit could be the battering in Adani stocks after Credit Suisse’s move,” added Baliga.

A report by Bloomberg on Credit Suisse’s private banking arm assigning a zero lending value to notes sold by three Adani Group firms had sent stocks spiralling, with Adani Enterprises nosediving 27%.Market breadth tilted towards declines, with an overall 1,273 stocks advancing on the BSE and 2,269 stocks declining.

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First published on: 02-02-2023 at 02:20 IST