Benchmark indices Sensex and Nifty witnessed their biggest fall on Budget day in 11 years on Saturday as finance minister Nirmala Sitharaman's Union Budget for the fiscal year 2020-21 failed to meet market demands. Rise in custom duty in most sectors, marginal relief for income taxpayers and less-than-expected allocation in infra spending were among the major factors that triggered the sharp sell-off.

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The BSE Sensex tumbled 987.96 points or 2.43 percent to end at 39,735.53, while the Nifty50 index closed 318.30 points or 2.66 percent lower at 11,643.80 dragged by selling across the board.

According to Ajit Mishra, VP Research at Religare Broking, markets will continue to see the overhang of the Union Budget next week as well. Besides, weak global cues would further add to the participants’ worries.

Vinod Nair, head of research at Geojit Financial Services, said that the Budget was ‘below-par’ considering that the market had very high expectations from the government. The support for the economy in terms of more spending was lacking in details, he said.

Here are the key reasons for this bloodbath:

Lack of sectoral sops

The Budget didn't have specific sops for any sector, be it auto or real estate, as widely expected to create demand in the economy and lift it out of the current slowdown. However, customs duty on most products was increased, sending major sectoral indices in a free-fall. The rise in rural as well as infra spending was also below estimates, which disappointed the investors further. Nifty Realty, Nifty Auto and Nifty FMCG fell between 2 percent and 8 percent amid lack of such incentives.

Complex income-tax structure

Market investors were also upset over the removal of all the exemptions under Section 80C in the new tax slabs, which may give only minimal benefit to the taxpayers if they choose to opt for a lower income tax rate regime. The removal of exemptions also put major insurance players under pressure with insurance companies falling up to 12 percent during the day.

No capital infusion in PSU Bank

PSU Banks were disappointed with the Nifty PSU Bank index down over 4 percent as the government did not announce any capital infusion in state-run banks to ease the NPA issue.

No LTCG revisit

The market was also expecting the finance minister to make some tweaks to long-term capital gains tax (LTCG) and securities transaction tax (STT). But were disappointed as there was no such announcement.

High divestment targets and fiscal deficit

The Street believes that the divestment target of Rs 2.1 lakh crore for FY21 is very ambitious, given that the government fell short of a target this fiscal. The fiscal deficit for the year FY20 is expected to come in at 3.8 percent of the GDP, much higher than the government's target of 3.3 percent. While the markets priced in a rise in the fiscal deficit, it is still higher than Street expectations.

Higher dividend tax on recipient

Although the dividend distribution tax has been abolished at the company level, it will be taxable at the hands of the investor, which has been another major set back for the markets.

First Published:Feb 1, 2020 5:41 PM IST