Budget 2018: The short-term pain of LTCG tax fears


Reports that finance minister Arun Jaitley may reintroduce a long-term capital gains (LTCG) tax have wreaked havoc on the Street. Of course, it isn’t visible in headline indices such as the Sensex and the Nifty. Even the broader BSE 500 index has corrected just 1.8% from the 52-week high it hit on 24 January.

But nearly three-fourths of the stocks, or 371 stocks in all, in the index have corrected by more than 10% from their respective highs. Of these, 50 stocks have fallen by more than 30%.

Similarly, small-cap and mid-cap indices have also corrected by 7% and 5% from their respective highs in January, much higher than large-cap indices.

There may be other reasons for the correction in these sets of stocks. Last week, a news report that Securities and Exchange Board of India probed the unusual rise in the shares of Vakrangee Ltd led to fears about a possible clampdown by the markets regulator.

Even so, the chief culprit behind the sharp correction in the markets is the fear of LTCG tax being imposed. As such, if the finance minister decides against it, there could be quite a relief rally in sections of the market.livemint