Knives are out for NAMO and Arun Jaitley, investors vow to vote-out BJP in 2019 elections
Tempers are running high at Dalal Street. Novices and veterans are aimlessly shuffling around, with a dazed and shell-shocked look at their faces.
The reason for this is the savage crash that the market saw yesterday in the aftermath of the Budget levying tax on LTCG.
The Sensex and Nifty crashed a whopping 839 and 256 points respectively.
The Nifty SML 100 index, which represents the index of small-cap stocks, sunk a mammoth 532 points, constituting 6.06% of the Index.
Investors lost a fortune of Rs 4.6 lakh crore in the carnage.
All multibagger aspirations disappeared into thin air, leaving investors feeling bitter and disappointed.
Carnage On Dalal Street: #Nifty Down 175 Pts, Sensex Down 558 Pts Panic Selling Seen In Broader Markets.
Smallcap Down 800 Points, BSE Midcap Down 600 Points.
— BTVI Live (@BTVI) February 2, 2018
Naturally, some investors are so frustrated that they vowed not to vote for the BJP in the upcoming elections.
Some fumed that they would “not even step into the polling booth”.
Come 2019.gonna vote For NOTA. Not born to keep paying taxes Fo https://t.co/ieLnZ4BCBb farm loan waiver, we will pay tax.Collect lower than expected in Gst, we will pay extra tax.Done wit this shitty govt which did nothing Fo middle class Fo last 4yrs.was a Bjp voter since 10yrs
— Shreenidhi P (@nid_rockz) February 1, 2018
I am not going to make an effort to goto polling booth itself.. Simply meaningless.
— Vikas G. Joseph, CFA (@vikasgj) February 1, 2018
Leading commentators also expressed despair at the levy of tax on LTCG.
Also isnt it painfully ironic that the white skin FII’s coming from Mauritius gets a tax free status on their stock investments whereas the brown skin middle class which voted @BJP4India and @narendramodi to power is being taxed all over?
— Basant Maheshwari (@BMTheEquityDesk) February 1, 2018
Absolute joker. Ltcg without indexation? So pay tax on inflation?
— Subramoney.com (@pvsubramanyam) February 1, 2018
Sensex crash is ‘No Confidence Motion’ against NAMO: RaGA
RaGa tried to take advantage of the rage amongst investors to take a dig at NAMO.
“In Parliamentary language, the Sensex just placed a solid 800 point No Confidence Motion against Modi's budget,” he quipped.
In Parliamentary language, the Sensex just placed a solid 800 point No Confidence Motion against Modi's budget. #BasEkAurSaal
— Office of RG (@OfficeOfRG) February 2, 2018
However, some seasoned investors were not impressed by RaGa’s potshot.
Hello @OfficeOfRG In the language of Brokers that you understand better than the language of Parliamentarians Sensex just laid a 800 point bear trap.
Thok lo aur… Keep Short selling India & Sensex will take away pants. #BasEkAurSaal fir #CongressMuktBharat likh ke le lo! https://t.co/NYo8HVdHhT
— Sushil Kedia (@sushilkedia) February 2, 2018
In parliamentary language,the #Nifty moved from 7800 in Dec 2016,to 11000 and beyond in Jan 2018!In unparliamentary language,you first need to figure out #Sensex from #Nifty,before you tweet on markets and yes,your gibberish is not even funny anymore:) #Modinomics works! https://t.co/SdjdNPNzMu
— Sanju Verma (@Sanju_Verma_) February 2, 2018
He is talking about no confidence motion when sensex has fallen just 800 points. Why didn't he open his mouth when sensex was scaling new and higher peaks after peaks, 35-36k which would have never happened during their term.
— Nita Kewl (@Nitzmatazz) February 2, 2018
Sensex 2014 – 28822.37
Sensex 2018 -35,066.75
अब जाकर आलू से सोना बना बहना।#RgKaro2024TakIntezar
— SUDIP YADAV (@sudip_lko) February 2, 2018
Not taxing capital gains so far was an anomaly: Ridham Desai
In sharp contrast to the eminent experts who are despairing over the levy of tax on LTCG, Ridham Desai welcomed the levy of LTCG tax.
He explained that capital gains is nothing but a deferred form of dividends and that not taxing capital gains while taxing dividends incentivize companies to reduce the dividend payout, thereby reducing the taxes.
“If you are taxing dividends, you have to tax capital gains because capital gains is nothing but future dividends. It is an anomaly that you tax dividends. So, you are incentivising firms to delay all dividends. Don’t pay dividends because dividends are taxed, arbitrage them because capital gains are not,” Ridham said.
“So, it is fair to bring capital gains under taxation. There should not be any independent income stream which is not subject to tax,” he added in a firm tone.
Levying both STT and LTCG Tax is not an anomaly
Ridham further explained that, contrary to the opinion expressed by leading experts, there is not much anomaly in levying both STT and tax on LTCG.
He pointed out that the persons who pay STT (day traders) are very different from those who pay capital gains tax (investors).
He also emphasized that the STT that investors pay on delivery transactions is a nominal amount and unlikely to pinch their pocket.
Ridham also opined that abolishing STT may be counter-productive because it would encourage rampant day trading, which is obviously undesirable.
Sensex & Nifty crashed because of global issues, not due to LTCG
Ridham cleared the air that the crash in the Sensex had nothing to do with the LTCG tax. Instead, it was the result of global weakness.
“FPI flows are not a function of just India. So, there is an emerging market angle to it. If the SGX is down this morning, then it is nothing to do with budget. So, we should not fall in this trap. In fact, 80-85 percent of what Nifty does in next three months is nothing to do with India. So, we can keep printing our growth numbers, capex, the market will do its thing because the Dow Jones will do its thing. If Dow goes down, Nifty it about to fall. It doesn’t matter. In this earning season, three out of four companies have surprised the analyst yet only one out of three stocks has gone up after the earnings. The market doesn’t want to go up. There is pressure on the SGX and nervousness in global equity markets. So, there is no bid left here.”
— CNBC-TV18 News (@CNBCTV18News) February 2, 2018
Ridham Desai says that #Budget18 is not spoiling indian markets. It is all global corrections. Buy these corrections. Be long term
— #RenukaJain, FCA ?? (@RenukaJain6) February 2, 2018
US/European Markets crash on #IndiaBudget2018
How banal an argument.
Indian market correction has nothing to do with the Budget, we are part of global ecosystem and thats driving the correction.
— sandip sabharwal (@sandipsabharwal) February 2, 2018
Ridham’s theory that the crash in the Sensex has nothing to do with the Budget or the LTCG tax is corroborated by the fact that yesterday the Dow Jones Index also slumped a massive 666 points, i.e. nearly 3%.
The Dow dropped 666 points, capping the worst week in two years. Here's a look at what's going on.
— CNN (@CNN) February 2, 2018
— CNBC International (@CNBCi) February 2, 2018
FUCK THE DOW JONES
— The Iron Sheik (@the_ironsheik) February 3, 2018
LTCG tax will not impact the decision of the FIIs to buy stocks
Ridham rubbished fears that FIIs would desert India because of the LTCG tax.
He explained that investors’ decisions are primarily driven by expectations of the returns that they can milk out of an investment.
“If somebody told that markets are going up 25 percent in next one year then I will worry about the tax later and first buy the market. I don’t think India loses out on account of it,” he said in a soothing tone.
Amazing how all of us survived from 1993 to 2003 when Sensex gave zero returns and LTCG was around.
— Anupam Gupta (@b50) February 2, 2018
Economy is on a solid footing, buy stocks
Menaka Doshi finally cornered Ridham and asked the most important question.
“Do you think economy is on a solid uptick?”
“The economy is on a solid footing,” Ridham replied with a big smile on his face, sending the clear signal that we should take advantage of the correction to buy stocks aggressively.
Foreign inflows will not be deterred by LTCG Tax: Akash Prakash
Akash Prakash of Amansa Capital, a FII, provided authoritative confirmation that “LTCG will not change flows into India in a very meaningful manner”.
He also assured that there is “lot of steam in Indian equity market”.
— ET NOW (@ETNOWlive) February 2, 2018
Hugh Young of Aberdeen Asset Management opined that while the LTCG tax makes India a less attractive destination in the short-term, it is unlikely to have much impact in the long term.
“It could well be acceptable. It is just a matter of calculating mathematically. It makes India marginally less attractive by definition. So, if you do lose 10% of future gains from today, it would cause people to step away from India a bit. But I do not think it will have any great effect on what we do in India,” he said.
He also opined that “relatively India looks a safer bet than many other markets,” implying that foreign investors have no option but to come to India despite the LTCG.
The writing is clear on the wall that we don’t have to despair the levy of LTCG tax or berate NAMO or Arun Jaitley. Instead, we should treat the correction as a golden opportunity to tuck into high-quality stocks at lower valuations. Then, when the dust settles and the shock over LTCG tax becomes a distant memory, we will be able to bask in riches!