Indian Stock Market Shows Mixed Reactions Post-Budget; Real Estate Gains Momentum

The Indian stock market swung between gains and losses early on Monday after the rout that followed Sunday’s Union Budget, which proposed hiking the securities transaction tax (STT) for the futures and options (F&O) segment. This led to the second sharpest budget-day fall in the NDA government since 2014.

Both the benchmark Nifty 50 at NSE and the 30-stock benchmark Sensex at BSE, opened the session lower and then recovered, but were trading with marginal gains at around 10:30 am. While the Sensex was trading with a gain of 0.2%, Nifty was trading flat with a 0.04% increase. On Sunday, the Sensex fell sharply by 1.9% to close at 80,722.94.

The slight recovery early in the session follows what analysts termed a “knee-jerk” reaction to the STT hike. Global brokerage Jefferies said the move was negative for sentiment, but the market structure remains largely unaffected. It also estimated the hike to have around a 5% impact on F&O trading volumes.

As part of the Union Budget, Finance Minister Nirmala Sitharaman proposed to raise the STT on futures to 0.05% from 0.02% to curb “speculative trading” in the F&O segment and generate additional revenues for the government. Meanwhile, the STT on options premiums and the exercising of these options is proposed to be raised to 0.15% from 0.1% and 0.125%, respectively.

However, the benchmark stock indices are unlikely to recover quickly, having fallen to a near four-month low in Sunday’s trading session. Negatives such as low earnings growth remain, while the change in STT is likely to keep foreign investors (FIIs) away and hold the rupee under pressure.

“The impact (of STT hike) will definitely be negative in the short term. My worry is that if the market remains low and does not generate returns as we have been seeing in the past few months, many sections such as retail and F&O players may start exiting their positions, draining liquidity further,” said Pravin Bokade, head of research at IDBI Capital Markets & Securities.

Most brokerage, depositories, and exchanges stocks continued to fall on early Monday, with these companies being among the worst hit from the STT hike, as they derive the majority of their revenue from the derivatives segment.

Real estate stocks were among the biggest gainers, extending the slight rise seen on Sunday post the Union Budget announcement. A push to build more data centers and global capability centers is positive for these companies. The proposal to offer a tax holiday until 2047 for foreign companies that provide cloud services globally using data center infrastructure based in India is also likely to indirectly boost earnings for the sector, according to brokerage CLSA.

Information technology stocks fell as investors likely booked profits after a sharp rise on Monday. These stocks had gained on Sunday after certain proposals in the Budget related to safe harbor, which reduces compliance and litigation for these companies. Bank stocks also continued their fall.