Indian shares ended a see-saw session lower on Tuesday, as the jump in consumer stocks on the budget promise of higher rural spending couldn't help the market fully pull back from a slide after a hike in the taxes on equity trading.
The NSE Nifty 50 ended 0.12% lower at 24,479.05, while the S&P BSE Sensex settled 0.09% lower at 80,429.04. They started the day with mild swings either side of the flat line and stayed that way as the federal budget was presented.
But the indexes sank 1.6% just after the government raised the tax rate for capital gains from equity investments and equity derivatives trades, seeking to curb the frenzy that has propelled the market to record highs.
Brokerages like Geojit Financial Services and 5Paisa Capital fell 2% or more as the tax hike could lead to a drop in trading volume.
"The budget would have called for celebrations by the equity market if only the government had not tinkered with the capital gain tax and avoided hiking of the security transaction tax (STT) in the derivative segment," said Gaurav Dua, head of capital market strategy at Sharekhan by BNP Paribas.
The market's over 200% surge since the lows of March 2020 was largely due to an influx of retail traders in derivatives, but that has sparked warnings of unsustainably high valuations.
"The markets' immediate reaction has been a decline, particularly in segments like public sector companies and small- and mid-caps, where valuations are well above historical averages," said Sonam Srivastava, founder and fund manager at Wright Research.
The broader, more domestically-focussed small- and mid-caps fell 0.9% and 0.6%, respectively.
Public sector companies fell 1.4%.
The bright spot was consumer stocks, which jumped 2.7% after the government earmarked funds for the agriculture and allied sectors and for rural spending, a key market for Indian consumer goods makers. Cigarette maker ITC jumped 5.5%, and was the biggest boost to the Nifty 50, due to the absence of a hike in tobacco taxes.
The biggest drag was Larsen & Toubro, which slid 3.1% after the government did not increase the amount it planned to spend on infrastructure. Other infrastructure stocks also fell.
Realty stocks reversed early gains to slide 2.3% after the government removed the indexation effect on property sales, which effectively means a higher sales tax.
Volatility, though, eased from a six-week high to end at 12.75.
