Chinmaya IAS Academy – Current Affairs Chinmaya IAS Academy – Current Affairs
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Surcharge on high income group, strong U.S. jobs data lowering prospects of Fed rate cut dampeners
The first trading session of the equity markets after the Union Budget saw stocks in a free-fall mode on Monday as a mix of global factors and domestic concerns emanating from some of the proposals in the Budget spooked investors. The government’s proposal to levy a surcharge on the high-income group coupled with the tax on buyback and increase in public holding in listed entities dampened investor sentiments, while the overall negative trend in emerging markets on account of a robust U.S. jobs data lowering the prospect of a rate cut by the Federal Reserve further played spoilsport.
Higher surcharge
“The increased surcharge also has a bearing on FPIs coming in through the trust route and taxation of Category 3 AIFs (Alternate Investment Funds). “This potentially reduces the post-tax attractiveness of India, vis-a-vis other markets, where such a high rate doesn’t exist,” said Mr. Amar Ambani. Bluechip stocks and Sensex constituents like Bajaj Finance, ONGC, Hero Motocorp, Maruti Suzuki India, NTPC, L&T and State Bank of India all lost between 4-5% each on Monday. A weak trend in most of the leading Asian markets also affected the sentiment in the Indian market. The benchmarks of South Korea, Hong Kong, Japan, Taiwan, China and Indonesia all ended in the red on Monday. “Globally, a positive payroll expansion, ahead of estimations, has led to a fear of anticipated Fed rate cut not coming through. “This fear of consequential impact on global flows has been felt across emerging markets,” said Pradeep Kesavan, senior vice-president, equity strategy, institutional equities, Elara Capital. The weakness in the equity markets also spilled over in the currency market with the rupee weakening 24 paisa against the dollar. The rupee closed at 68.66 a dollar as compared to the previous close of 68.42. Most emerging market currencies weakened against the dollar on the back of strong U.S. job data.
