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Sensex Finishes Marginally Lower as LTCG Tax Proposed
Thu, 1 Feb Closing | Karan Janani, TM Team

Indian share markets finished in red after finance minister Arun Jaitley announced a long-term capital gains tax for investing in equities. At the closing bell, the BSE Sensex closed lower by 58 points and the NSE Nifty finished lower by 11 points. The S&P BSE Mid Cap finished down by 0.5% while S&P BSE Small Cap finished up by 0.6%.

Losses were largely seen in consumer durables stocks, pharma stocks and energy stocks. Capital goods stocks and auto stocks witnessed majority of the buying momentum.

Asian stock markets finished mixed as of the most recent closing prices. The Nikkei 225 gained 1.68%, while the Shanghai Composite & the Hang Seng fell 0.97% and 0.75% respectively. European markets are higher today with shares in France leading the region. The CAC 40 is up 0.54% while Germany's DAX is up 0.46% and London's FTSE 100 is up 0.13%.

Rupee was trading at Rs 63.61 against the US$ in the afternoon session. Oil prices were trading at US$ 65.38 at the time of writing.

The Market cap to GDP ratio for Indian companies is close to dangerously high levels. While this is still some way off the peak of FY-08, when it had once reached close to 150, it's relatively high.

FY17 saw this ratio reach close to 80. It is also expected to increase further given the moderate growth expectations in India's GDP for FY18. Warren Buffett once considered this as one of the best valuation metrics to gauge the markets.

Past history shows some correlation between the ratio and the share market. 2008 saw Sensex decline by 38%, when this ratio crossed the 100 mark. Also, the market has bounced back sharply when this ratio was low.

The Warren Buffett Indicator Suggests Indian Equity Market Is Overvalued

The basic assumption in this ratio is that whenever the GDP of the country grows, the market performance will reflect it. Also, when stocks do well, it can be extrapolated to assume the Indian economy is doing well.

Arun Jaitley in his last full budget of the government has revised his fiscal deficit target for 2018-19 to 3.3% of GDP against the earlier target of 3%, after breaching the deficit target for 2017-18. While Budget estimate of fiscal deficit for 2017-18 was 3.2% of GDP, revised estimate now stands at 3.5% of GDP, same as 2016-17.

The budget focused mainly on agriculture and rural sectors, along with the creation of the world's largest National Health Protection program, that would reach up to 10 crore poor families.

Budget reduced tax rate to 25% for companies who have a reported turnover of up to Rs 2.5 billion. This will benefit the entire MSME sector, which accounts for 99% of the companies filing their tax returns. Revenue foregone is Rs 70 billion.

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The finance minister also announced that three public sector insurance companies-The Oriental Insurance Company Ltd, National Insurance Company Ltd, United India Insurance Company Ltd- will be merged into a single insurance company and listed on the exchanges.

In addition, the finance minister announced a slew of reforms for the infrastructure sector, to spur growth and employment.

In news that would interest market participants, Budget 2018 proposed to levy long-term capital gains tax (LTCG) of 10% on gains exceeding Rs 100,000 from sale of equity shares. However, capital gains made on shares until January 31, 2018, would be grandfathered.

Cigarette stocks finished higher after no major announcement of excise duty hike on cigarettes in the budget. ITC share price finished up by 1.5% and Godfrey Phillips share price finished up by 0.6%.

Shares of hospital operators and insurance companies rose after government proposed National Health Protection Scheme. The finance minister announced setting up a National Health Protection Scheme for 10 crore families. The scheme will give Rs 5 lakh per family per year.

Avanti Feeds share price surged 8% after Finance minister said in a budget that the government will spend Rs 100 billion on aqua, animal husbandry infra. The government said it also extended Kisan Credit cart to fisheries and for animal husbandry.

L&T share price finished the day up by 2.8% after the company said its net profit for the December quarter rose 53% from a year ago, as revenues increased due to higher order inflow from infrastructure and hydrocarbons businesses.

The company's consolidated net profit for the quarter ended 31 December rose to Rs 14.9 billion from Rs 9.72 billion a year earlier.

The company reported a 38% year-on-year increase in fresh orders for the fiscal third quarter and reiterated its revenue growth guidance of 12% for the current fiscal.

MRF share price surged 5% after the company reported a profit of Rs 3.41 billion in the December 2017 quarter versus a profit of Rs 2.88 billion in the same period a year ago. December quarter revenue from operations stood at Rs 37.99 billion versus Rs 35.33 billion a year ago.

M&M share price finished on an encouraging note (up 4.5%) after the company's January sales rose 32 percent in volume over the same month last year, at 52,048 units. The volume growth was led by the medium and heavy commercial vehicles segment which grew 70% at 1,049 units.

And here's a note from Profit Hunter:

The Union Budget brought in a lot of volatility in the stock markets today. The Nifty 50 Index was up 75 points in the morning. But it slipped more than 200 points from the day's high after the finance minister, Arun Jaitley announced a long-term capital gains tax (LTCG) of 10% on gains exceeding Rs 100,000 from sale of equity shares. However, the index recovered sharply to hit a new day high but again slipped lower to end the session marginally lower.

Many stocks in the market witnessed similar volatility. But one stock was immune to the budget noise - Mahindra and Mahindra (M&M). It was the top gainer in the Nifty Index - up 5% for the day.

After the stock bottomed out at 59 in December 2008, it made a healthy rally to hit a high of 717 in August 2014. The stock then traded in a broad range of 550 - 720. It broke out if this range on the upside in June 2016, indicating a resumption of the uptrend. But this was a false breakout as the stock again slipped back into the range.

In December, the stock formed a double-bottom pattern near the lower end of the range and rallied strongly.

The stock again broke out of the range on the upside in December 2017 to touch a life-time high of 785. The breakout volumes were heavy, indicating buying interest. It consolidated for a while near the life high. Today, the stock resumed its up move as it rallied 5% with strong volumes to hit a fresh life-time high of 802.

So can the stock continue the momentum or will it find some selling at its life-time high? Let's keep a track of it...

M&M Hits a New Life-time High
M&M Hits a New Life-time High 

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