Markets extend losses as investors digest higher taxes on equity trades

FPIs selling amid weak global cues also weighed on market performance

Benchmarks indices extended the losses for the fourth consecutive day on Wednesday after the government announced a hike in securities transaction tax and short term capital gains tax in the Budget.

The Sensex closed at 80,149, with a decline of 280 points, or 0.4 per cent. The Nifty fell 66 points, or 0.3 per cent, to end the session at 24,414. The Sensex and the Nifty hit intra-day lows of 79,751 and 24,307, respectively.

FPIs sold shares worth Rs 5,131 crore on Wednesday, while domestic institutions stepped up buying, infusing Rs 3,137 crore into the cash market.

The government has announced a steep increase in securities transaction tax (STT) in the derivatives segment to curb speculative trading activity. It has also raised the short-term and long-term capital gains taxes on equities.

 

“We remain cautious on the markets. A good Budget is in the price and unlikely to move the needle significantly. On the other hand, we are looking at a tepid earnings season, as topline growth remains moderate and margin tailwinds are petering out. Also, rate cuts are at least 1-2 quarters away and valuations are stretched at 21.4x one-year forward P/E of Nifty, with no imminent upgrades,” said Seshadri Sen, head of research and strategist, Emkay Global Financial Services.

"Markets experienced some decline after investors' mood soured following an unexpected increase in short-term and long-term capital gains taxes. We anticipate the market to quickly discount the budget and shift its focus to the trajectory of corporate earnings growth, which has remained marginally below our expectations so far in Q1FY25,” added Siddhartha Khemka, head of retail research, Motilal Oswal Financial Services.

The market breadth was positive, with 2,755 stocks advancing and 1,143 declining. The Nifty Midcap 100 and Small Cap 100 rose 1.04 and 1.76 per cent, respectively. HDFC Bank and Axis Bank were the biggest contributors to the Sensex's decline.

HDFC Bank fell 0.8 per cent, and Axis Bank fell 1.8 per cent. SBI fell 1.4 per cent. Going forward, the macro data from the US and the remainder of the earnings will determine the market trajectory.