Financial Daily from THE HINDU group of publications
Friday, Jul 09, 2004
Industry & Economy - Budget
Markets - Stock Markets
Thumbs down by markets
Mumbai , July 8
STOCK and bond prices crashed when frantic investors started a massive sell-off on realising what a blow the Finance Minister had dealt them in a "small 0.15 per cent transaction tax on every trade on the stock exchanges" as he put it.
Stock indices fell rapidly as selling gathered steam once the Finance Minister, Mr P. Chidambaram, completed his speech and investors dug into the fineprint of the Union Budget. The 30-share BSE Sensex that had inched up over 40 points, briefly crossing the 5,000-mark after opening rather flat, slid as the Minister's speech progressed and lost 112 points or 2.26 per cent to end the day at 4843.84. The broader 50-share S&P CNX Nifty of the NSE closed at 1518.15 or 3.11 per cent lower than its previous close of 1566.80.
In the bond market, securities across maturities fell by about Re 1. The transaction tax will hit bond investors more as margins are too thin.
In fact, the Sensex was shored up about 30 points because of the post-close weighted averaging of transactions of the last half hour of trading. It had lost about 141 points when trading halted at 3.30 p.m. More than five shares declined for each one that advanced in the `A' and `B1' groups put together.
Dealers say it is just a beginning. "It is only a trailer. The worse is yet to come. The tax is very negative for the market, especially for the bond market. It would come to a complete stand-still," said a debt fund manager with a top mutual fund.
Agitated investors and traders demonstrated on Dalal Street, calling the Budget proposals "anti-market".
Mr Ajit Surana, Managing Director, Dimensional Securities, said, "Transaction tax is bad as it will suck the liquidity out of the market. Impact cost will rise and the market will become shallow. The market is likely to open tomorrow with a downside gap."
An equity fund manager said the market already lacks depth as shown up on May 17 when the Sensex crashed 840 points. The impact cost will shoot up and foreign investors will find it difficult to trade here. "The cash-futures arbitrage market creates a lot of liquidity. Now it will dry up," he said.
Bond market traders shed tears. "At one stroke the Minister has ensured that we go out of business," said a dealer.
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