At the moment there is no stopping the markets. The Sensex with much ease broke 34,000 points and then 35,000 points and then 36,000 tspoin.
It has now gained 28 per cent in the last one year, beating most of the global indices. Domestic funds purchased almost $19 billion into the markets pushing it to dizzying heights.
The worry now is that the introduction of long term capital gains (LTCG) tax on equities, which may put a halt to the rally. We are just about 15 months away from elections and the government needs resources to propel growth.
One way to raise resources is the LTCG on stocks. At the moment, if you sell shares after one year there is no capital gains tax that is payable. On all other asset classes LTCG is payable. Investors have been minting money in stocks without a fair capital gains treatment with other asset classes.
There are a few things that may happen though. The government may raise the tax exemption limit to a holding period of three years in place of one. In this case the market may react although not too much However, if it does levy tax on Long Term Capital Gains Tax we might see a swift reaction in the markets.
However, every year ahead of the Budget discussions centre around the LTCG and nothing comes through. One will have to wait and watch this year.