Sinha’s tax measures send market tumbling

MUMBAI, FEB 29: The stock markets took a severe hammering after Finance Minister Yashwant Sinha announced several unpopular measures in th...

MUMBAI, FEB 29: The stock markets took a severe hammering after Finance Minister Yashwant Sinha announced several unpopular measures in the Union budget. Share values on the Bombay Stock Exchange (BSE) crashed 441 points intra-day after the Finance Minister made it clear that the corporate tax rate on dividends would be doubled to 20 per cent and income tax concessions on export earnings of firms will be phased out.

The bellwether BSE Sensex finished 5.11 per cent, or 293.22 points, lower at 5,447.47 as sustained unloading pulled down shares in the post-budget trading session. The National Stock Exchange Nifty index closed 4.77 percent or 82.10 points down at 1,640.45.

The market had opened on a positive note this morning with the Sensex going up by as much as 150 points only to crash after the budget. Several stocks, including infotech, media and telecom had zoomed before the budget announcement. “Prices tumbled like nine-pins soon after Sinha announced the proposals,” said a dealer.

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Dealers said huge outstanding positions and end-account considerations at the National exchange also contributed to the fall. “The market came down sharply due to the announcement of the proposed phasing out of tax exemption on export earnings," said Rajiv Sampat, director at Parag Parikh Financial Advisory Services.

Infotech, pharma, cyclical and media shares were down in the selling avalanche. Many scrips hit the lower end of the circuit breaker as their prices fell below the eight per cent limit. There were only sellers in the market, unnerving punters and investors alike.

The move to hike the tax on dividends on corporates to 20 percent from 10 percent would especially hurt the more liberal dividend paying multinational firms in pharma and fast moving consumer goods sectors, said Purvesh Shah, Chief dealer at KJMC Capital Market Services. The market was also disappointed that the budget did nottackle the need to curtail expenditure, he said. "There are some revenue generation measures, but where is the cut in subsidies?" said a dealer

Sampat said the market was likely to be volatile over the next few days and stock-specific as the real impact of the budget sank in. “The market has received the increase in the dividend tax and doing away with the export concessions in a rather negative way,” president of the Bombay Stock Exchange Anand Rathi said.

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Uday Kotak of Kotak Mahindra said the two areas of dividend tax and removing export concessions as a blow to the market. However, the BSE president hoped that a crash-like situation in the market would change after some time.

President of the Confederation of Indian Industry (CII) Rahul Bajaj described the budget measures as punishment to dividend paying companies. “Tax liability on my own company goes up by Rs. ten crore annually.”