Stock Markets Show Mixed Reactions Post-Budget, Real Estate Stocks Gain

The Indian stock market experienced a volatile start on Monday, following the significant rout that occurred after Sunday’s Union Budget. The budget proposed an increase in the securities transaction tax (STT) for the futures and options (F&O) segment, leading 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 but managed to recover slightly by around 10:30 am. The Sensex was trading with a gain of 0.2%, while the Nifty was up 0.04%. On Sunday, the Sensex had fallen sharply by 1.9% to close at 80,722.94.

The slight recovery in the early session is being attributed to what analysts are calling a “knee-jerk” reaction to the STT hike. Global brokerage Jefferies has stated that the move is negative for market sentiment but does not significantly impact the overall market structure. Jefferies estimates that the hike will have around a 5% impact on F&O trading volumes.

Finance Minister Nirmala Sitharaman proposed to raise the STT on futures to 0.05% from 0.02% to curb speculative trading and generate additional revenues for the government. Additionally, 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 see a strong recovery in the near term. The market has fallen to a near four-month low, and factors such as low earnings growth and the STT hike are likely to keep foreign investors (FIIs) away, putting pressure on the rupee.

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

Most brokerage, depositories, and exchanges stocks continued to fall on Monday, as these companies are heavily reliant on revenue from the derivatives segment and are among the worst hit by the STT hike.

On a positive note, real estate stocks were among the biggest gainers, extending the slight rise seen on Sunday. The Union Budget's proposal to offer a tax holiday until 2047 for foreign companies that provide cloud services globally using data center infrastructure based in India is expected to indirectly boost earnings for the real estate sector. Brokerage CLSA noted that the push to build more data centers and global capability centers is positive for real estate companies.

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

Overall, while the market showed some resilience in the early session, the long-term impact of the STT hike and other budget proposals remains to be seen. Investors and analysts are closely watching for any further developments that could influence market sentiment.