July 23, 2024, 1:23 PM IST
In a significant blow to the Indian stock market, both the Sensex and Nifty witnessed a sharp decline today following the announcement of an increase in the Securities Transaction Tax (STT) during the Union Budget 2024 speech by Finance Minister Nirmala Sitharaman. The Sensex plummeted by over 900 points, marking a substantial loss and causing widespread concern among investors and analysts.
Key Budget Announcements and Market Reactions
The Union Budget 2024, presented by Finance Minister Nirmala Sitharaman, was anticipated to introduce several measures aimed at providing tax relief for the middle class and boosting rural development. However, the proposal to increase the STT overshadowed these expected positives, triggering a market crash.
At 12:27 PM IST, the Sensex dropped by 1.09%, losing 876.39 points to settle at 9,625.69, while the Nifty declined by 1.09%, falling 267.30 points to 24,241.95. By 12:35 PM IST, the Sensex had plunged further, reaching ₹79,515.64, a total loss of 986.44 points.
Sectoral Impact
The downturn affected almost all sectors, with notable losses in banking, financial services, IT, metals, pharmaceuticals, oil & gas, and the auto industry. Specifically, banks fell by 1.67%, financial services by 2.06%, IT by 0.43%, metals by 1.60%, pharma by 0.13%, oil & gas by 1.87%, and auto by 0.17%. The only sector that managed to stay in the green was FMCG, which rose by 2.5%.
Tax Reforms and Customs Duty Changes
Alongside the controversial STT hike, the budget introduced new income tax slabs aimed at easing the financial burden on the middle class:
- Up to ₹3,00,000: Nil
- ₹3,00,000 to ₹7,00,000: 5%
- ₹7,00,000 to ₹10,00,000: 10%
- ₹10,00,000 to ₹12,00,000: 15%
- ₹12,00,000 to ₹15,00,000: 20%
- Above ₹15,00,000: 30%
Additionally, the Finance Minister proposed a reduction in customs duties on precious metals, lowering the rate on gold and silver to 6% and on platinum to 6.4%. Furthermore, customs duty on 25 critical minerals, including lithium and cobalt, was proposed to be exempted, aiming to support industries like auto, nuclear, and telecom.
Economic Context and Expert Insights
The budget comes at a time when India’s economy faces several challenges, including uneven growth, tepid consumption, and weak private capital expenditure. Madhavi Arora, an economist at Emkay, commented, “Weaker political capital, uneven growth story with tepid consumption, and missing vigour in private capex and the rural sector form the backdrop of the upcoming Budget.”
Outlook
As the market digests the implications of the budget, investors are likely to remain cautious. The increased STT has sparked fears of reduced market liquidity and higher transaction costs, potentially dampening investor sentiment in the short term. However, the tax cuts and customs duty exemptions may provide some relief and long-term benefits to specific sectors and the broader economy.
Stay Updated
Follow all the latest updates and live coverage on the stock market reaction to the Union Budget 2024 here.