Post Budget, market sentiment at 8-year low

Market sentiment has touched the lowest point in the past eight years after the Budget, presented by Nirmala Sitharaman, set off a selling spree.

After the Budget, till date, the market has witnessed only 72 advances for every 100 declines, DH analysis of BSE data reveals. Since Budget day on July 5, of all 12 trading sessions, the market breadth remained on the positive side only on three occasions.

The last time the market sentiment was so low was back in January 2011 when advances to declines ratio stood at similar 0.72 to 1 on the back of turbulent times in the domestic economy as the then government was unable to withdraw the fiscal stimulus given to the industry.

The last time the sentiment was lower than this was in October 2008, when it stood at 0.57 to 1 after the crash of Lehmann Brothers in the US on September 15, 2008, that ultimately led to the Great Recession.

Market insiders are already comparing the current situation to the 2008 bubble burst, as markets are expected to depreciate further. "Back then, the sell-off was led by the layman. This time, it is led by the he-man," jibed a big-ticket trader on the Budget.

Prior to the Budget, in the first four trading days of the current month, market sentiment was highly positive — with 113 advances against 100 declines on an average.

The sell-off has been led by Foreign Institutional Investors (FIIs) and Foreign Portfolio Investors (FPIs), who are unhappy with the imposition of the "super-rich tax".

The Budget has raised the surcharge on tax paid by the super rich. Prior to the Budget, a surcharge of 15% on a tax of 30% was levied on those earning more than Rs 1 crore. The Budget has increased the surcharge to 25% for those with taxable income from Rs 2-5 crore and to 37% for those earning more than Rs 5 crore. This makes the effective tax rate for  the  two groups 39% and 42.74% respectively. Many of the FPIs will be hit by the hike in surcharge, as they invest as non-corporate entities, which are classified as regular individuals for taxation purposes.

Foreign investors are of the contention that lower growth has resulted in muted earning, and this increase in surcharge has come as a double whammy for them.

Till now, since the Budget day, FIIs have withdrawn a net of Rs 7,887 crore from the Indian equity market — buying shares worth Rs 46,871 crore while selling shares worth Rs 54,759 crore.

Investor wealth wiped

Despite early gains to investors after Prime Minister Narendra Modi took charge of his second term, an analysis of stock markets during his 50-day tenure shows a loss of Rs 9.68 lakh crore for investors. The total market capitalisation of all investors on the markets stood at Rs 144.6 lakh crore on the close of Monday’s trade, 6.3% down from Rs 154.4 lakh crore when Modi took charge on May 30.