Mumbai: The stock market slumped after finance minister Nirmala Sitharaman refused to exempt foreign portfolio investors ( FPIs ) structured as trusts from a higher tax surcharge. Overseas investors sold shares worth Rs 950 crore on Friday as the increased levy added to concerns over an economic slowdown among other issues.The Nifty slid 177.65 points, or 1.53 per cent, to close at 11,419.25 while the Sensex slipped 560.45 points, or 1.44 per cent, to end at 38,337.01. Of the 50 Nifty stocks, 43 ended in the red. The volatility index jumped 6 per cent to end at 12.45, reflecting heightened nervousness.The weakness was led by auto and finance stocks , with Mahindra & Mahindra, Bajaj Finance, Tata Motors, Hero Moto-Corp, IndusInd Bank and Yes Bank ending down 3-4 per cent, making them the worst performers on Sensex. Reliance Industries ended down 1 per cent ahead of its June quarter result.The broader market fared worse, with the BSE MidCap index losing 2 per cent and the SmallCap index falling 1.8 per cent.The finance minister had suggested in her reply to the Finance Bill on Thursday that trust-based FPIs convert themselves into companies to avoid paying the higher surcharge. That may not be easy, according to some experts.“It’s not clear whether FPIs are in a position to change the structure. If they can’t, then they will have to pay a higher tax,” said Sanjeev Prasad, co-head, Kotak Institutional Equities.FPIs have pulled out Rs 8,093 crore from Indian equities so far in July due to uncertainty over taxation issues. On Friday, domestic institutional investors bought local stocks worth a net Rs 734 crore.Besides the FPI tax issue, the budget had also detailed other proposals that have spooked markets. The finance minister had recommended that the Securities and Exchange Board of India (Sebi) look at increasing the minimum public shareholding limit to 35 per cent from 25 per cent. Brokerages estimate this could flood the market with nearly Rs 4 lakh crore of equity supply and could be a problem if the timeline for implementation is less than three years. Moreover, the economy is slowing, corporates are defaulting and the nonbanking finance companies (NBFC) space is struggling.“FPI tax issue was one of the triggers for the markets,” said Piyush Garg, CIO, ICICI Securities. “There was hope that FPIs would be left out of the tax. Also, there is nothing major happening in the economy.”Garg said Nifty trading has shifted to a lower band of 11,200-11,700 from 11,500-12,000 earlier. India’s GDP slumped to a five-year low of 5.8 per cent in the March quarter, which has had investors concerned about slowing growth.Prasad of Kotak Institutional Equities said expectations of a stimulus in the budget had been belied.“The government focus was on fiscal consolidation, which is good for the bond market, but the equity market was looking for a stimulus which did not come through, and so the markets have come off,” he said. “The question is how much longer the slowdown in the economy will continue without a stimulus.”The July budget increased the surcharge levied on top of the applicable income tax rate from 15 per cent to 25 per cent for those with taxable incomes between Rs 2 crore and Rs 5 crore, and to 37 per cent for those earning more than Rs 5 crore.