Indian markets are expected to fall even further next week, given that the Union Budget lacked the punch to push economic growth. The Sensex is down more than 6.5 per cent since hitting record highs of 42,273 points in Jan, 2020.
Investors are disappointed with a host of things. The first is that there was no abolition of Long Term Capital Gains Tax on shares. This was a much needed abolition that would have encouraged investment in capital markets, as well as equity mutual funds.
Apart from this, while the Dividend Distribution Tax (DDT) was scrapped, and companies would no longer have to pay the same, the dividend in the hands of investors is now being taxed.
Why would an investor in the 30 per cent tax bracket want to invest in solid dividend paying companies, if his dividends are going to be taxed. Earlier, companies paid the DDT, while dividends up to Rs 10 lakhs was exempted in the hands of investors. So, in the highest tax bracket, if an investor receives Rs 10,000 as dividends about Rs 3,000 would be gone by way of tax.
Now, look at how the new income tax rates would harm savings and investments in mutual funds. Under the new income tax rates, the rates have been bought down, but, your exemptions would go. Investors may opt for the new tax regime and avoid investments in ELSS to claim tax exemptions. This may hit investments in not only ELSS, but, all other investments including PPF, PF etc. If fund inflows into ELSS begin to dwindle it could certainly have some impact on mutual fund inflows, which could lead to selling pressure in Indian stocks.
Overall, the markets are extremely disappointed and the Sensex saw one of the biggest falls since Nov 2016. In fact, we anticipate a further weakness in the markets.
Global cues weak - markets could fall next week
On Friday, the Dow Jones fell a staggering 600 points on fears that the corona virus could sperad. The corona virus fear is now seriously beginning to frighten the global stock markets and trade. Several US companies have suspended China operations. Apart from this, the Philippines has reported its first death and China has said that 304 people have been killed because of the virus.
It's unlikely that we will see a swift recovery in global stocks anytime soon. At least for another weak it looks like there is going to be a firm downside, as business and trade get impacted.