Sensex, Nifty fall after FM announces hike in excise duty
Markets will look to consolidate in the week ahead after most event risks like monetary policy and budget now over.
Indian markets nosedived after Finance Minister Pranab Mukherjee hiked the excise duty and service tax from 10% to 12%. The Sensex was down 89 points or 0.5% to 17,587 while the Nifty declined over 20 points to 5,359 at 1235 hours.
Here are the indirect tax proposals:
Service tax: All services to be taxed, except those on negative list; service tax rate hiked from 10% to 12%. This will contribute Rs18,660 crore to the tax kitty.
Excise duty: Raise the rate from 10% to 12%.
Customs duty: No change proposed
Markets were also disappointed with the fiscal deficit target of 5.1% for 2012-13. Analysts had expected the deficit to be below 5%.
Earlier, the Sensex had jumped nearly 200 points after Mukherjee said hard decisions will need to be taken to revive the economy. Mukherjee followed his intent by announcing that subsidy efforts will be directed to target subsidies better.
"The time has come to take a close look at growth of revenue expenditure... some subsidies are inevitable but they become undesirable when they compromise the macroeconomic fundamentals or they don’t reach the intended beneficiary," Mukherjee said in Parliament. The expenditure on subsidies would be reduced to 2% of the GDP, he added.
Mukherjee proposed raising Rs 30,000 crore from disinvestment next year.
Announcing a new scheme to drive small investors to stock markets, Mukherjee proposed that investments up to Rs 50,000 will get tax break provided the annual income of investor is below Rs 10 lakh. The investment would have a lock in period of three years. All brokerage stocks like Motilal Oswal (6.7%) and JM Financial (2%) traded higher.
Here are other key announcements that are likely to affect individual sectors.
PSU Banks: Mukherjee also announced Rs15,800 crore for recapitalization of PSU banks. PSU banks traded with gains. Bank of India was the top gainer (2.4%).
Infra: He proposed that the tax-free bond limit will be raised to Rs 60,000 crore. Shares of IDFC (3.7%) jumped post this announcement. IDFC was the top Nifty gainers.
Power index (up 0.6%): The power sector would get Rs 10,000 crore out of the infra tax free bonds.