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New tax proposal weighs on Indian capital market
Friday, 09 July 2004, 19:30 IST
MUMBAI: India's key share market index fell as much as two percent in early trade Friday with jittery investors dumping heavyweight equities on fears that a new turnover tax would fuel a liquidity crisis in the trading ring.
Dealers said the market witnessed heavy selling pressure after opening as institutional investors rushed to pare their exposure on heavyweight counters following uncertainty created by the imposition of the turnover tax.
The blue-chip equities, however, recouped some its losses in the intra-day trade with bulk investors resorting to bargain hunting on index heavyweight counters.
At noon, the stock market benchmark 30-share Bombay Stock Exchange sensitive index or Sensex stood at 4,843.34, a loss of 0.50 points or 0.01 percent.
The market index fell as much as 2.3 percent Thursday as the government's new taxation proposal for equities trading spooked the sentiment of institutional investors.
Presenting the general budget for 2004-05, Finance Minister P. Chidambaram said Thursday the government would levy a moderate tax on transactions in securities.
The rate will be 0.15 percent of the value of the transaction. The tax will be levied on the buyer.
"The imposition of transaction tax at a time when the market was looking for a positive trigger for sustained rally comes as a bit of a setback for investors," said Neeraj Deewan, a senior analyst with Quantum Securities.
"Investors initially thought the transaction tax would only be levied on delivery-based transaction. But selling pressure intensified when it became clear that it would apply to all trade," Deewan told IANS.
"At a time when we are seeing lot of day-trading activities, having a 15 basis points tax on every transaction is going to hurt the short-term retail investors.
"The tax will be in addition to the brokerage the day trader is already paying."
In the old economy sector, shares of cement companies such as Associated Cement Companies was quoting 0.11 percent lower at 
237.20 and Grasim Industries was down 0.22 percent at 1,020.
Source: IANS
237.20 and Grasim Industries was down 0.22 percent at 1,020.
Source: IANS