Markets trade lower amid jittery over tax hike on equity investments

Indian equity benchmarks made negative start on Wednesday tracking weakness in global peers. Soon, markets turned volatile and struggling for direction after the 2024 budget introduced significant shifts in capital gains tax that could affect investment decisions. The government hiked long-term capital gains tax (LTCG) to 12.5 per cent and short-term capital gains tax (STCG) to 20 per cent. Also, it hiked Securities Transaction Tax to 0.02 per cent for futures trading, and 0.1 per cent in case of options. Now, markets are trading lower with cut of around 0.35% in early deals. Foreign fund outflows dampened sentiments in the markets. Foreign institutional investors (FIIs) net sold shares to the tune of Rs 2,975.31 crore in the cash market on July 23. Some cautiousness came as an analyst at Moody's Ratings said India's fiscal deficit glide path set out for 2025-26 is reasonable, but a coalition government at the Centre may pose challenges to pass bigger reforms that the economy needs. 

However, broader indices showed some optimism. Some support came as Commerce and Industry Minister Piyush Goyal said removal of angel tax for all classes of investors will help attract investments in the segment and further promote the growth of budding entrepreneurs. Traders took note of report that Finance Secretary TV Somanathan expressed confident that India could see sub 7 per cent growth for the fiscal year 2024-25. In stock specific development, Titagarh Rail Systems rallied after the company said it has commenced the export of traction converters.

On the global front, most of the Asian markets are trading lower, following the negative cues from Wall Street overnight, as traders remain uncertain about the outlook for the markets following recent volatility. They also remain reluctant to make significant moves ahead of the release of key US GDP and inflation data later in the week, which could have a significant impact on the outlook for interest rates. Besides, the manufacturing sector in Japan slipped into contraction territory in July. Meanwhile, Taiwan stock market suspended trading as typhoon Gaemi approaches Taiwan with strong winds and heavy rain.

The BSE Sensex is currently trading at 80171.15, down by 257.89 points or 0.32% after trading in a range of 80158.04 and 80519.58. There were 9 stocks advancing against 21 stocks declining on the index.

The broader indices were trading in green; the BSE Mid cap index rose 0.32%, while Small cap index was up by 1.36%.

The top gaining sectoral indices on the BSE were Power up by 1.26%, Utilities up by 1.23%, Consumer Durables up by 0.96%, Telecom up by 0.78% and Industrials up by 0.71%, while Bankex down by 0.38%, Auto down by 0.26%, TECK down by 0.09%, Basic Materials down by 0.04% and FMCG down by 0.01% were the top losing indices on BSE.

The top gainers on the Sensex were ITC up by 2.57%, Tata Motors up by 2.22%, Tech Mahindra up by 1.27%, NTPC up by 1.05% and Titan Company up by 0.72%. On the flip side, Hindustan Unilever down by 2.70%, Bajaj Finance down by 2.24%, Nestle down by 1.77%, HCL Technologies down by 1.14% and Ultratech Cement down by 1.00% were the top losers.

Meanwhile, in a big relief to startups, Commerce and Industry Minister Piyush Goyal has said that removal of angel tax for all classes of investors will help attract investments in the segment and further promote the growth of budding entrepreneurs. The move would mainly help emerging sectors like deeptech, artificial intelligence, clean energy, among others, which require a large amount of capital at an early stage.

Angel tax (income tax at the rate of 30 per cent) refers to the income tax that the government imposes on funding raised by unlisted companies, or startups, if their valuation exceeds the company’s fair market value. Goyal said ‘It will further strengthen the startup ecosystem of the country. It was a long-pending demand of the industry. It will help attract investments.’ He added ‘I am quite sure that, it (the decision) will take care of everybody’s interest’.

Section 56(2)(viib) of the Income Tax Act provides that the amount raised by a startup in excess of its fair market value would be deemed as income from other sources and would be taxed at 30 per cent. Touted as an anti-abuse measure, this section was introduced in 2012. It is dubbed as ‘angel tax’ due to its impact on investments made by angel investors in startup ventures. Earlier also, the government has made several amendments to make this tax regime more conducive for investors and startups. A change was made under the Finance Act 2023 proposed to include investments from foreign investors or non-residents within the scope of the angel tax with effect from April 2024. As on date, about 1.44 lakh startups are recognised by the DPIIT.

The CNX Nifty is currently trading at 24375.40, down by 103.65 points or 0.42% after trading in a range of 24374.10 and 24504.25. There were 14 stocks advancing against 35 stocks declining, while 1 stock remained unchanged on the index.

The top gainers on Nifty were ITC up by 2.54%, HDFC Life Insurance up by 2.53%, Tata Motors up by 1.92%, SBI Life Insurance up by 1.23% and Tech Mahindra up by 1.21%. On the flip side, Hindustan Unilever down by 2.76%, Bajaj Finance down by 2.56%, Tata Consumer Products down by 2.47%, Nestle down by 2.01% and Britannia down by 1.75% were the top losers.

Asian markets are trading mostly in red; Nikkei 225 slipped 451.37 points or 1.14% to 39,143.02, Hang Seng declined 108.24 points or 0.62% to 17,361.12, Jakarta Composite plunged 22.71 points or 0.31% to 7,291.15, KOSPI dropped 10.93 points or 0.39% to 2,763.36 and Straits Times fell 3.73 points or 0.11% to 3,457.43, while Shanghai Composite was up by 2.9 points or 0.1% to 2,918.27.