Small investors big losers in mayhem

Sharebrokers and holders check the Sensex and Nifty at a share market in Kolkata on Friday. PTI File Photo

There seems to be no reprieve for investors battling the negative sentiment that has firmly set into the stock markets post-Budget. Small investors, in particular, seem to have either booked heavy losses or are running negative on the stocks held, with the extended economic slowdown and weak corporate earnings adding to the misery. Between July 5 and July 18 alone, investors’ wealth of over Rs 6.59 lakh crore got wiped out, with valuations tumbling down to Rs 144.76 lakh crore from Rs 151.35 lakh crore. In the last three trading sessions, investors lost an additional Rs 4 lakh crore in share valuation as deep despair set in. The ‘bear hug’ has only worsened as Finance Minister Nirmala Sitharaman offered no respite whatsoever to perk up the mood. Foreign institutional investors and foreign portfolio investors (FPIs) have majorly triggered the sell-off after the higher tax payout proposed in the Budget.

Several sovereign wealth funds, pension funds and FPIs have already expressed their inability to turn into corporate entities to escape the 42.9% tax outgo. Given that they are owned by federal governments of different countries, they continue to operate as trusts or association of persons. Over 2,000 foreign funds operating in India apprehend that they may have to fork out big sums in short and long-term capital gains after the government slapped higher surcharge on high net-worth individuals. Market participants stare at the prospect of their eventual pull out, given that foreign funds’ aggregate net selling crossed Rs 10,000 crore each day beginning July 5. Weak corporate results, lower profits and margins coupled with no fresh forward-looking statements have contributed to the bloodbath in the market. What perhaps dampened the market spirit further was the fall in corporate numbers across 23 major sectors. The IMF prediction that GDP growth may be lower by 0.3% in both 2019-20 and 2020-21, to 7% and 7.2% respectively, has confirmed fears of a protracted moderation in growth. The negative sentiment in South East Asian markets has added to the gloom.

Market investments are subject to risks. But what has flummoxed the players is that top government ministers are sitting pretty with no counter-narrative to reverse the slide in the stock market. Markets and companies seem unimpressed by Sitharaman’s statement that the government would look at extending 25% corporate tax rate to all companies. Reducing the effective tax outgo for companies, finding a way out for foreign funds’ problem and taking
larger measures to push up consumption demand are key to bringing about a modicum of stability to the markets.

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