Budget 2019: Markets snap winning run as public float proposal spooks investors

Mumbai: Snapping their four-session rising streak, benchmark equity indices closed with sharp losses on Friday after the Budget proposal to raise public shareholding threshold fanned fears of oversupply of new papers in an already overbought market.

After touching the 40,000-mark in morning trade, the BSE Sensex turned choppy after Finance Minster Nirmala Sitharaman rose to present her maiden Budget.

The 30-share gauge finally finished 394.67 points, or 0.99 per cent, lower at 39,513.39.

On similar lines, the broader NSE Nifty sank 135.60 points or 1.14 per cent, to 11,811.15.

In her Budget speech, Sitharaman said it was the right time to consider increasing minimum public shareholding from 25 per cent to 35 per cent.

As many as 1,174 listed firms, including giants like TCS, Wipro and DMart, will have to off-load promoter stakes worth about Rs 3.87 lakh crore, a Centrum Broking report said.

Many PSUs have not been able to meet even the 25 per cent public shareholding norm till now, while there is already a lack of appetite for non-bluechip companies, traders said.

The Budget also proposed easing KYC norms for foreign portfolio investors and allowing the listing of social enterprises and voluntary organisations to enhance participation in the capital markets.

It also gave relief in levy of Securities Transaction Tax (STT) by restricting it only to the difference between settlement and strike price in case of exercise of options.

In order to discourage the practice of avoiding Dividend Distribution Tax (DDT) through buy back of shares by listed companies, the Budget said listed companies shall also be liable to pay additional tax at 20 per cent in case of buy back of share, as is the case currently for unlisted companies.

"Exemption enjoyed by the shareholder of a listed company on income arising on account of buyback of shares has been withdrawn with effect from July 5, 2019," said Ashok Shah, Partner, N.A Shah Associates LLP.

During the week, the Sensex gained 118.75 points or 0.30 per cent, while Nifty rose 22.30 points or 0.18 per cent.

Since the interim Budget on February 1, the Sensex has zoomed 3,043.96 points or 8.34 per cent, and the Nifty gained 917.50 points or 8.42 per cent.

Yes Bank was the top loser in the Sensex pack Friday, crashing 8.36 per cent, followed by NTPC, M&M, Vedanta, Sun Pharma and TCS, which lost up to 4.81 per cent lower.

On the other hand, IndusInd Bank, Kotak Bank, SBI, ITC, Bharti Airtel and ICICI Bank rose up to 2.16 per cent.

"While we need to await Sebi regulations regarding how much time will be given to these companies to meet with this minimum public shareholding norms, the overhang of this requirement of off-loading of promoter shareholding can have significant impact on the markets and the specific stocks," said Jagannadham Thunuguntla, Senior VP and Head of Research (Wealth), Centrum Broking.

"The regulator needs to provide sufficient time to meet this requirement so as not to over-flood the markets with stake sales by promoters," he added.

V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said, "The fiscal deficit target of 3.3 percent is unlikely to be achieved. The disinvestment target of Rs 1.05 lakh crore is achievable and has to be strongly pursued.

"The proposal to raise public stake in listed companies is desirable but will face practical constraints in implementation in the case of some large-cap companies. The crash in bond yields to around 6.66 percent is the direct consequence of the proposal to think about raising sovereign debt from abroad."

Sectorally, BSE metal, realty, power, auto, IT, basic materials, utilities, oil and gas, industrials, energy and capital goods indices plunged up to 3.85 per cent.

FMCG, bankex and telecom gained up to 0.18 per cent.

Broader BSE midcap and smallcap indices too cracked up to 1.39 per cent.

Among other measures, Sitharaman said the government will provide one-time partial credit guarantee to public sector banks to buy rated pooled assets of financially sound NBFCs.

She also announced raising the disinvestment target to Rs 1,05,000 crore in FY 2019-20 as against Rs 90,000 crore set in the interim budget.

Interoperability of RBI depositories and SEBI depositories is necessary for seamless transfer of treasury bills, she said, adding the government will take necessary measures for the same.

The rupee, meanwhile, witnessed a sharp recovery to trade at 68.52 against the US dollar intra-day.

Elsewhere in Asia, bourses in China, Japan and South Korea ended on a negative note ahead of US jobs data. Equites in Europe were trading in the green in early deals.

The benchmark Brent crude futures were trading 0.52 per cent higher at USD 63.63 per barrel.