Stock Market Reacts to Budget 2024: Sensex, Nifty Show Resilience Amid Tax Hikes
Budget Day Volatility in Indian Markets
The Indian stock markets experienced a tumultuous day on Budget 2024, with the Sensex and Nifty indices fluctuating between highs and lows. As Finance Minister Nirmala Sitharaman announced the budget proposals for 2024-25, including significant tax hikes, the market reacted sharply but managed to recover by the end of the trading session.
Market Gyrations: Highs and Lows
On July 23, 2024, the 30-share BSE Sensex initially plummeted by over 1,200 points, hitting a low of 79,224.32 before recovering most of its losses to settle at 80,429.04, down just 73.04 points or 0.09%. The NSE Nifty mirrored this pattern, dropping 435.05 points to 24,074.20 at its lowest before closing at 24,479.05, down 30.20 points or 0.12%.
Key Announcements and Immediate Impact
Securities Transaction Tax (STT) and Capital Gains Tax
One of the most impactful announcements was the hike in the Securities Transaction Tax (STT) on futures and options (F&O) trading. This move, coupled with increases in long-term capital gains tax (LTCG) to 12.5% and short-term capital gains tax (STCG) to 20%, sent shockwaves through the market. As a result, the Sensex dropped by 1.6%, and the Nifty plunged by 1.8% during the day.
Recovery Factors: Tax Exemptions and Duty Cuts
Despite the initial panic, the market found some relief in tax exemptions and customs duty cuts on consumer durables and FMCG shares. This helped stocks recover from their day’s lows. Companies like Titan and ITC saw significant gains, with Titan jumping over 6% and ITC surging more than 5%.
Sectoral Performance: Winners and Losers
Top Gainers
Several stocks managed to buck the trend and end the day on a high note. Notable gainers included:
- Titan: +6%
- ITC: +5%
- Adani Ports, NTPC, Infosys, Hindustan Unilever, HCL Technologies, and Sun Pharma also saw notable gains.
Major Laggards
On the flip side, some major stocks struggled to recover:
- Larsen & Toubro
- Bajaj Finance
- State Bank of India
- Axis Bank
- HDFC Bank
Expert Opinions and Future Outlook
Short-Term Market Reaction
Market experts believe that the hike in capital gains taxes will cause short-term volatility. Sanjay Sinha, Founder of Citrus Advisors, described the tax increases as a “body blow,” predicting a negative short-term reaction. However, he emphasized the importance of focusing on long-term growth prospects.
Long-Term Perspective
Pankaj Pandey, Head of Research at ICICI Securities, noted that while the budget is structurally positive, the capital gains tax hikes are a short-term dampener. He highlighted that the budget avoided populism and maintained a fiscally prudent stance, lowering the fiscal deficit target to 4.9% of GDP.
Despite the initial shock caused by tax hikes, the Indian stock markets displayed remarkable resilience on Budget 2024 day. The Sensex and Nifty indices recovered significantly from their lows, demonstrating investor confidence in the long-term prospects of the market. Experts advise investors to stay focused on the fundamental strengths of their portfolios and use market corrections as opportunities to add quality stocks.
