 "Budget 2024-24: Why India VIX surged up to 17% today; check reasons here")
On Tuesday, the volatility indicator for Indian bourses, India VIX surged up to 17.52 per cent intraday. This came amidst heightened volatility witnessed after the Finance Nirmala Sitharaman concluded the Budget speech for the financial year 2024-25.
The key announcement that gave momentary jitters to the market was around increased capital gains tax, the announcement that the market pundits were anticipating before the budget announcement. The FM in her speech proposed to hike the long term capital gains (LTCG) tax to 12.5 per cent from earlier 10 per cent.
She further hiked short-term capital gains (STCG) from present 15 per cent to 20 per cent.
The announcement caused heavy selling in the market, where at one point the benchmark Sensex slipped up to 1278 points, registering its day’s low at 79,224, while Nifty50 fell 435 points to its day's low at 24,074 points.
From the market perspective the Budget proposals with the intent of raising tax revenue from capital gains are slightly negative, analysts said. They further noted that the taxation of share buy back income at the hands of the recipients also is a negative.
“The higher taxes on F&O was expected and this is being done to reduce the excessive speculative trades in the market. The increase in STCGs tax from 15 per cent to 20 per cent is sharp, while the increase in LTCGs tax from 10 per cent to 12 per cent is only marginal particularly when seen from the perspective of raising the LTCGs tax exemption limit from Rs 1 lakhs to Rs 1.25 lakhs,” said Dr V K Vijayakumar, Chief Investment Strategy, Geojit Financial Services
Further analysts said that the downsides in markets will be short lived after the announcement as the market adapts to these new tax measures. However, this will ultimately contribute to a sustainable investment landscape with balanced and orderly growth of the capital market.
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“The increase in the tax rate on long-term capital gains and short-term capital gains on equity, along with the increase in STT on futures and options, are aimed at moderating currently heightened activity levels and fostering a more sustainable pace of growth in the stock market,” said Shripal Shah, MD and CEO, Kotak Securities.
Sharp recovery in market from day’s low
Post the initial jitters after the LTCG and STCG tax rejig announcement, the benchmark Sensex recovered as much as 1400-odd points from their day's lows of 79,224 levels to 80,629 levels, up over 100 points.
Similarly, Nifty recovered 442 points from its days low at 25,516 levels, up slightly by 0.05 per cent.
In broader markets, too, there was a visible sharp recovery from day's lows, as the MidCap and Small Cap indices fell up to 4 per cent each during the day.
From there, the indices regained the majority of the losses; the Midcap index was down by 0.55 per cent while SmallCap was down 0.04 per cent. The hightened level of buying and selling during the day pushed the volatility index up to 17.52 per cent.
At 03:00 PM; the BSE Sensex was down by 0.12 per cent at 80,407 levels, while the Nifty50 was down 0.13 per cent at 24,473.
At 03:00 PM; the BSE Sensex was down by 0.12 per cent at 80,407 levels, while the Nifty50 was down 0.13 per cent at 24,473.