Stocks Fell Most Since Demonetisation, Day After Budget

Indian equity benchmarks fell the most since the demonetisation week a day after the government reintroduced a tax on equity investments held for more than a year to boost its revenue.

The S&P BSE Sensex fell 2.3 percent or 840 points, the most since November 2016 to 35,067 and the NSE Nifty 50 Index slumped 2.3 percent or 256 points to 10,760. The overall breadth was extremely bearish as 1,525 stocks declined while 81 ended higher on the BSE.

In his Union Budget 2018 speech, Finance Minister Arun Jaitley proposed the re-introduction of a 10 percent tax on long term capital gains that arise on the sale of listed equity shares. But, he said, gains up to Jan. 31 will be grandfathered, that is, not subject to tax. This new tax applies to equity sales starting April 1, 2018 and only on gains exceeding Rs 1 lakh or more.

The fineprint in the Budget also sparked fears early on Friday that foreign portfolio investors may be taxed because of LTCG, intensifying the selloff. This prompted the income tax department to clarify, later in the day, that the same grandfathering benefits that domestic investors will get on the reintroduction of the equity tax will also apply to FPIs.

(Corrects an earlier version that misstated the decline on March 3, 2008)