Lack of Stimulus, Additional Rich Tax Drag Indian Equities Lower

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(Bloomberg) -- Indian equities dropped, erasing earlier gains, as a lack of stimulus from the government in its annual spending plan unveiled Friday and additional tax on high earners spooked investors.

The benchmark S&P BSE Sensex slid 1% to 39,513.39 at the 3:30 p.m. close in Mumbai, reversing gain of as much as 0.3%. The gauge halted a four-day rally and eked out gains for the week. The NSE Nifty 50 Index dropped 1.1% to 11,811.15.

India plans to narrow its budget gap target to 3.3% of the gross domestic product for the financial year that started April 1 compared with 3.4% set in February’s interim plan. That is contrary to expectations that the government will spend more to boost a slowing economy. The nation also will levy additional taxes on individuals earning more than 20 million rupees (about $292,000) a year.

Strategist View

  • “There’s no big fiscal stimulus plan, quite contrary to what many investors expected and that’s dragged the stocks down,” said Vivek Ranjan Misra, head of fundamental research at Karvy Stock Broking Ltd. in Hyderabad. “To add to it, more levy on high net individuals has hurt sentiments further.”
  • “India has limited options to boost growth, exports, and the farm and manufacturing sectors,” said Jigar Shah, head of research at Maybank Kim Eng Securities India Pvt. in Mumbai. “Earnings growth for Indian companies will be challenged by the slowing economy and other headwinds.”

The Numbers

  • Sixteen of the 19 sector indexes compiled by BSE Ltd. declined, led by a gauge of metal stocks. Eleven of these gauges retreated more than 2%.
  • Twenty-five of the 31 Sensex members and 43 of the 50 Nifty stocks dropped. Among the top 500 companies, more than four fell for each share that gained.
  • Yes Bank Ltd. slumped 8.4% to its lowest since May 2014, the steepest among Sensex and Nifty members. The shares are down 51% this year amid the lender’s spat with the regulator and changes in management.

Analyst Notes/Market-Related Stories

  • Struggling Shadow Bank Sector Gets Lifeline From Indian Budget
  • Winners and Losers: Who Got How Much in India’s Annual Budget

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