The 30-share BSE Sensex today plunged 561.45 points or 3.39% to 15,980.63 on weak global cues. Concerns on the political front also weighed on the market after the Communist Party of India-Marxists (CPM) on Thursday, 6 March 2008, renewed its threat on the United Progressive Alliance (UPA) government saying that the ruling coalition’s future depended on how it took the call on pursuing the Indo-US nuclear deal.
Sensex is down 4303.36 points or 21.22% in the calendar year 2008 so far from its close of 20,286.99 on 31 December 2007.
A whole lot of factors including weak global markets due to worries over US subprime mortgage crisis and impact of a US recession, created havoc on the domestic bourses.
The sentiment was further dampened by a hike in short term capital gains in Union Budget 2008-09 announced on 29 February 2008. Traders, domestic funds and some foreign institutional investors (FIIs) are likely to be hit by a hike in short term capital gains tax on sale of shares to 15% from 10%, which amounts to a massive 50% hike in the tax rate, announced in the Union Budget for 2008-09 presented on Friday, 29 February 2008.
A fallout of the hike may be that some of traders and funds may pre-pone their sales of equities before the higher short term capital gains tax becomes applicable from 1 April 2008.
The change in tax treatment of the Securities Transaction Tax (STT) in the budget, may also impact arbitrage volumes on the bourses. STT will now be treated like any other deductible expenditure against business income for the assesse. This is against the current practice whereby an assesse gets 100% rebate for STT paid against the tax liability for the year. A fall in arbitrage will result in decline in liquidity on the bourses.
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