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Sensex, Nifty Bleed; PC Jeweller Cracks 30%

Fri, 2 Feb 11:30 am

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Indian share markets slumped 500 points in morning trade as market participants were disappointed with the government's Union Budget for fiscal year 2018-19.

The FM in his Budget speech announced a 10% levy on capital gains of over Rs 1 lakh without the benefit of indexing. The government's move to bring back long-term capital gains tax on equities and retain securities transaction tax (STT) has raised questions in many quarters.

The sentiments also remained negative amid weak Asian markets as concerns over rising bond yields in Asia increased.

The BSE Sensex is trading lower by 532 points and the NSE Nifty is trading lower by 166 points. The BSE Mid Cap index is trading down by 3% while the BSE Small Cap index is trading down by 4%. The rupee is trading at 63.61 to the US$.

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.

In news from the economy, as per an article in The Business Standard, India's annual budget could push up inflation and prompt the central bank to raise interest rates sooner raising the probability of a scenario that could hurt the nascent economic recovery.

Jaitley raised government spending for rural areas and support to farmers, while slowing the pace of fiscal consolidation.

Traders and analysts believed these moves could add to inflationary pressures at a time when retail inflation is at a 17-month high. That would make the Reserve Bank of India more cautious when it announces the monetary policy review on Wednesday next week.

A cautious stance at the RBI would increase the probability of interest rate increases in the coming fiscal year. That in turn could raise tensions between the government and the central bank, which has resisted pressures for deep rate cuts to boost growth as it worried about increasing inflation.

Vakrangee share price brimmed over into the fifth trading session amid reports that the company has come under the market regulator scanner for alleged price and volume manipulation of its own scrip on the BSE and the NSE.

PC Jeweller share price cracked 60% routing a huge chunk of the value from the stock. As per Moneycontrol, the firm last week purchased roughly half a percent stake in the company. On January 25, 2018, the company purchased 2 million shares at Rs 561.71 apiece. This amounted to a stake purchase of Rs 1.12 billion. However, the stock soon recovered from the day's lows after the company's management, in an interview allayed investors' fears. It is currently trading 30% lower.

Cigarette stocks were trading higher in morning trade after no major announcement of excise duty hike on cigarettes in the budget.

After almost six years, there will be no increase in cigarette prices after the Budget with finance minister Arun Jaitley giving a breather to the tobacco industry by not announcing any change in taxation or any anti-tobacco initiatives.

As per an article in The Economic Times, this comes as a big relief to cigarette companies which have seen a staggering 202% tax growth since 2011-12.

Also, ITC in its quarterly earnings release had said that the combined impact of increase in excise duty last year and the revision in GST compensation cess had resulted in an incremental tax burden of over 20% on the company.

ITC share price was trading up by 0.2% at the time of writing.

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