Stock market dips amid selling pressures and rumors of tax changes

The Indian stock market witnessed a sharp downturn on Friday, with the Sensex plunging 732.96 points to close at 73,878.15, while the Nifty shed 172.35 points to end at 22,475.85. The sell-off was fueled by heavy selling pressure in index heavyweights and rumors circulating about potential tax changes in the upcoming Union Budget for 2024-25.

Among the Nifty companies, only 13 advanced while 37 declined on the day. Coal India, Bajaj Finance, Grasim, Tata Consumer Services, and ONGC were among the gainers, but Bharti Airtel, Reliance, Nestle India, Maruti, and JSW Steel suffered significant losses.

Market expert Ajay Bagga attributed the downtrend to rumors suggesting the equalization of tax treatment for all asset classes, with long-term capital gains potentially being taxed at the marginal rate.

"There were rumors in the market that tax treatment for all asset classes will be equalized in the Union Budget of July 2024. This would bring long-term capital gains to the marginal tax rate," Bagga said. "The actual revenue impact of such a move is doubtful, but the sentimental damage done is much more."

Bagga acknowledged that while the likelihood of such a move by the finance ministry is questionable, the rumors had a significant negative impact on market sentiment, leading to widespread selling.

"With Rs 36,000 crores collected at source under STT, a clean, low-cost, and zero leakage tax is already in place for stock market investors," he added. "These rumors led to widespread selling today. As such, there is no basis to such a move on the part of the finance ministry, but in the days of social media and fake news, such rumors get amplified very fast."

Despite the market's reaction, Bagga remained optimistic about long-term prospects and advised investors to view dips as buying opportunities. "We stay positive on the markets and recommend buys at every dip. Tax treatment is outside the investor's control and not something that should determine asset allocation," he said.

The market's volatile response underscores the nervousness among investors regarding potential policy changes and the impact rumors can have on market sentiment, even in the absence of concrete evidence.

Experts caution against overreacting to unsubstantiated speculation and advise maintaining a long-term perspective while remaining vigilant for buying opportunities during market downturns.