Selling activity intensified during the closing hours and consequently, the benchmark indices have closed deep in the red today. BSE Sensex edged lower by around 230 points (down 1.3%) whereas NSE Nifty edged lower by around 70 points (down 1.3%). BSE Midcap and Small cap indices were not spared either as they closed lower in the vicinity of 1% each. More than 6 stocks edged lower on the Sensex today for every 1 that closed higher. Banking and IT heavyweights inflicted maximum damage on the Sensex. While the indices circled around the breakeven point during the entire morning session, selling activity gathered momentum post noon and eventually took the Sensex below the psychologically crucial mark of 18k.
While Asian markets closed mixed today, European stocks have opened mostly on a negative note. The rupee was perched at Rs 47 to the dollar at the time of writing.
Software counters were amongst the worst hit today with biggies like TCS, Infosys and HCL Tech shedding anywhere between 2% and 3%. While the overall weak sentiment was indeed responsible for the downfall, the companies were also impacted by the Government's decision to hike the Minimum Alternate Tax (MAT) to 20% from 18% currently. It should be noted that IT companies enjoy certain deductions on account of which their profits for taxation purposes come in much lower than book profits and hence, they come under the ambit of MAT. However, with the gap between corporate tax rates and MAT rates narrowing significantly over the past few years, IT companies have been forced to shell out higher taxes. This is thus having a negative impact on their profitability. Besides IT companies, other companies that make heavy use of deductions for tax purposes are also likely to be hit.
L&T, the infrastructure behemoth also closed in the red today. This was despite some positive news emanating from the company in the form of value unlocking in subsidiaries. In an interview to a leading daily, the company's Chairman and MD, AM Naik opined that it is looking to unlock value in all the subsidiaries starting with its finance arm, L&T finance. In fact, L&T finance could list as early as the end of this calendar year. Also in the pipeline are subsidiaries like L&T InfoTech and L&T infrastructure. It should be noted that these subsdiaries have all achieved a critical mass and should accrue a good amount of wealth to the company's existing shareholders as and when they come up for listing.