Indian Stocks Slip Amid Rising Derivatives Costs and Stagnant Foreign Investment Measures
Indian stock markets experienced a significant downturn driven by increased costs in derivatives trading and stagnation in foreign investment initiatives. The budget proposal, which raised the securities transaction tax (STT), particularly unsettled investors.
Market Overview
On February 1, 2023, the Nifty 50 index fell by 0.7% to 25,140 points, while the BSE Sensex declined by 0.61% to 81,766.42 points as reported at 1:24 PM IST. A broad sell-off across market sectors was evident, with 13 of the 16 major sectors witnessing losses.
- The broader small-cap index tumbled 1.9%.
- Mid-caps dropped by 1.2%.
Impact of the Budget Proposal
The government’s budget included a steep increase in STT for futures, rising from 0.02% to 0.05%, and for options, from 0.1% to 0.15%. This move raised concerns among analysts regarding market liquidity.
Ambareesh Baliga, an independent market analyst, remarked, “The increase in STT on derivatives is detrimental to the markets.” He highlighted that the absence of relief on STT for cash market investments compounded the negative impact. Moreover, no significant measures to attract foreign investments were revealed.
Investor Sentiment
Krishna Bhimavarapu, an economist at State Street Investment Management, commented that the budget does not significantly change the investment outlook for foreign investors in the foreseeable future.
In the aftermath of the budget announcement, several companies in the trading sector experienced sharp declines:
- BSE shares fell by 6.3%.
- Angel One saw a drop of 6%.
- Groww’s shares decreased by 9%.
Sector Performance
State-owned banks faced a substantial decline of 3.6% due to the absence of major divestment measures. Defence stocks also slid by 3.3%, retracting from an 8.8% increase over the preceding four sessions leading up to the budget.
In contrast, IT stocks bucked the trend, rising approximately 1%, signaling a potential sectoral resilience amid broader market challenges.
Conclusion
India’s federal budget has reignited concerns about rising costs in derivatives trading and the lack of compelling foreign investment incentives. Analysts are urging caution as these factors could lead to an uncertain market outlook in the coming months.
