According to a leading BSE broker, weak global markets were dragging Indian stocks down with Budget measures adding to the selling pressure. The Dow Jones industrial average fell 2.51 per cent on Friday following a series of bad news including poor quarterly results from American International Group Inc and Dell Inc and weaker-than-expected results on the Chicago purchasing managers index, which painted a dreary picture of the manufacturing sector.

Japan’s benchmark Nikkei 225 index plunged 4.5 per cent to close at 12,992.18. Hong Kong’s Hang Seng index fell 3.1 per cent to close at 23,584.97. In other markets in the region, the Korea Composite Stock Price Index fell 2.3 per cent to 1,671.73, while Australia’s benchmark S&P/ASX200 index slid 3 per cent to 5,405.8. Markets in China, however, bucked the trend.

Marketmen fear that the change in tax treatment of the STT in the Budget may impact arbitrage volumes on the bourses. STT will now be treated like any other deductible expenditure against business income for the assessee. This is against the current practice whereby an assessee gets 100 per cent rebate for STT paid against the tax liability for the year. A fall in arbitrage will result in decline in liquidity on the bourses.

Further, 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 per cent from 10 per cent, which amounts to a massive 50 per cent hike in the tax rate. Another fallout of the hike may be that some traders and funds may advance their sales of equities before the higher short term capital gains tax becomes applicable from April 1.

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