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Updated: Jul 08, 2019 23:59 IST

India’s benchmark Sensex experienced its biggest fall this year, and the biggest fall in a decade in a session after the Union Budget, as it crashed nearly 800 points on Monday amid disappointment over the lack of measures to immediately revive economic growth, and fears that the higher tax on the super-rich would extend to investment vehicles through which some foreign investors channel their investments into India.

A heavy global sell-off was also responsible for the fall, which saw the erosion of around ~3.4 lakh crore of wealth.

Extending its losses for the second day, the Sensex plummeted 907 points in intraday trade before closing at 38,720.57 points, a loss of 792.82 points or 2.01%. The Nifty of the National Stock Exchange fell 252.55 points, or 2.14%, to settle at 11,558.6 points. The indices posted their lowest close in seven weeks.

Both the Sensex and the Nifty fell nearly 1% on Friday after finance minister Nirmala Sitharaman’s budget speech.

While a senior finance ministry official, who asked not to be named, said on Monday afternoon the government may issue a clarification on the applicability of the increased surcharge on foreign portfolio investors (FPIs), Sitharaman later said there was no such need at this point in time.

The budget increased the surcharge on tax for those earning between ~2 crore and ~5 crore a year to 25% (from 15% previously) and for those earning over Rs 5 crore to 37% (also from 15%). There are fears that this tax will apply to trusts commonly used by foreign investors for their India investments.

“Equity markets were expecting some kind of fiscal stimulus from the budget but there has been a big disappointment,” said Rusmik Oza, head of research, Kotak Securities.

Analysts said the next trigger for the market will be corporate earnings (earnings for the first quarter of 2019-20 will start coming in this week), but a delayed monsoon and lagging consumption growth could mean that there isn’t much good news on that front.

The markets witnessed heavy selling in financial, auto and oil stocks. Bajaj Finance was the biggest loser, falling over 8%. Hero MotoCorp, Maruti, Tata Motors and Bajaj Auto also fell on reports of production cuts amid a continuing decline in sales.

Punjab National Bank (PNB) was down 7.9% after reporting a fraud of Rs 3,800 crore by Bhushan Power & Steel. Among financial stocks, HDFC dropped by 0.77%, SBI by 4.14% and Axis Bank by 2.84%. NTPC, L&T and ONGC fell between 4% and 6%.

“The budget failed to revive bullish sentiments among the investor community. The disappointment was aggravated as the market’s expectations of a stimulus package to revive growth were not met. Further, expectations of weak earnings growth in the coming quarter are dampening sentiments,” Sunil Sharma, the chief investment officer of Sanctum Wealth Management, was quoted by Press Trust of India as saying.

The stocks on BSE lost Rs 3.39 lakh crore in market value (or market capitalisation). The rupee declined by 24 paise to close at 68.66 against the US dollar amid weakening expectations of a rate cut by the US Federal Reserve in the near future.

Asian markets ended significantly lower with the Shanghai Composite Index ending down by 2.58% lower, Hang Seng by 1.54%, Nikkei by 0.98% and Kospi tumbling 2.20%. Equities in Europe were also trading lower in their respective early sessions.

“Today’s market fall has been due to a combination of global and domestic factors. Globally, a positive payroll expansion — ahead of estimations, has led to a fear of anticipated Fed rate cut not coming through. Domestically, proposals in the budget to increase in minimum public shareholding levels to 35% was a dampener along with 20% tax on share buy-backs,” said Pradeep Kesavan, senior VP, equity strategy, institutional equities, Elara Capital.

Some analysts also said a higher income tax levy on high-net individuals added to the poor showing in stocks.

The steep fall was primarily on account of confusion about foreign investors falling under the new surcharge category. “The current assumption is that FPIs, NLPs, trusts and individuals fall under this new surcharge category, that’s why there was an all round selling. This apart, the maximum promoter holding requirement recommended in the Union Budget is 65% from the existing 75%. This has led to nervousness among market participants and the weakness in the equity markets continued from the Budget day,” said Dinker Shanbhag, Head Institutional Equities, Lotus Global Equities Pvt Ltd.

(With inputs from agencies)