An uneventful day. Today, the market again tried to come closer to 25,000 but didn’t quite make it, much like batsmen in their nineties getting nervous. Nothing wrong with that; it can take its own sweet time to cross 25,000. However, another part of the market made sure that the markets remained buoyant and near the 25,000 territory.
Today, we will discuss capital gains tax, its fairness, and how it is applied in other countries. There is a lot of backlash on the government for capital gains, some of it justified, some not.
Market Overview
As you see here, Nifty has been very flat over the last two sessions. The closing price has not moved from the previous day. Yesterday, it gapped up, went up, but again came off, and today the same thing happened. 24,857 on two sessions. We’ve now tried to touch 25,000 but have fallen back. Nothing wrong in it. We’ve gone up 700-800 points in the last three or four sessions, so we are taking our time to consolidate there.
Nifty Next 50
Nifty Junior also hit some resistance at this previous high, not really coming off by very much, down 0.1%. It is poised to make new highs in the coming days.
Nifty Mid and Small Cap
Mid-caps are more robust, up 0.48% at a new high of 21,750. No stopping here, with the last five sessions in green. Small caps are also peaking out of that previous resistance, up 0.82% to 17,893, now very close to the 18,000 mark. Amazing run in the markets.
Nifty Bank Overview
Bank Nifty remains very iffy, up 0.18% like yesterday. Today’s move was sharp with huge bouts of selling, almost two times, almost 800 points of selling. There seem to be sellers at every bounce, but overall, prices are not really collapsing; they are sticking but not yet able to go up.
Nifty Heatmap
Today’s heat maps show that the power sector, NTPC, Power Grid, and energy stocks like BPCL were ruling the markets. Tata Motors was also up 3.3%, Titan up 1.6%. Other than that, there wasn’t much to talk about. HDFC Bank was up 0.6%. Lever, ITC, Nestle, Britannia were all down. FMCG was the major segment losing ground today in Nifty Next 50. Stocks that were running hard till a day or two back, like ABB, Siemens, PNB, and D-Mart, all corrected today.
Adani stocks, specifically Adani ENSOL, were up 7%. Varun Beverages, after a spectacular result, collapsed by 6%, indicating that everything was already baked in. Godrej, CP, United Spirits, HAL, BEL, Torrent Pharma all lost ground. DLF managed to inch up a bit more. Trend continues up at plus 1.8%.
Sectoral Overview
Sectoral trends showed energy leading the market from the front today. There was talk about new orders for NTPC and Power Grid, with swelling order books and new capacity additions driving these stocks. Public sector enterprise stocks and energy stocks were the leadership positions today. Over the last month, public sector enterprise stocks have gained 9%, and in the last twelve months, they are up by 115%. Energy stocks are also up 66% in the last twelve months.
FMCG, pharma, and consumption sectors were down. The market is gradually moving away from defensive again, indicating an aggressive front-foot stance, not in a defensive mode.
Sectors of the Day
Nifty Energy Index
The energy index has convincingly crossed above the election day high, showing good promise going forward.
Stocks of the Day
PCBL
In the stock spotlight, PCBL ran up 10.76%. It had been in a huge consolidation phase since February, dropping from Rs. 350 down to as low as Rs. 210, but has come back up smartly, hitting resistance now. A new chapter for PCBL could start if it breaks above this level.
Long-term, PCBL consolidated from 2008 till almost 2017, then broke out above Rs. 20, going to Rs. 125, dropped to near Rs. 20, and then started a journey from Rs. 20 to Rs. 331, showing very volatile moves over the last 24 years but gradually going up.
Story of the Day : Capital gains tax – Is it fair or unfair?
In 1992, Manmohan Singh introduced indexation benefits for capital gains and a special tax rate of 20% for LTCG. Back then, LTCG was 20%, STCG was at slab rate, and dividends were taxed in shareholders’ hands. In 1997, Chidambaram abolished the dividend tax for shareholders, shifting it to companies as a dividend distribution tax, keeping LTCG at 20% with indexation.
In 1999, Yashwant Sinha changed LTCG to 10% without indexation or 20% with indexation, and dividends were again exempted for shareholders. In 2002, dividends were taxed again in shareholders’ hands, but LTCG and STCG rates remained the same. In 2003, Jaswant Singh reverted dividends to tax-free for shareholders.
In 2004, Chidambaram exempted LTCG, introduced STCG at 10%, and introduced the securities transaction tax (STT), with the promise of reducing other taxes. In 2008, STCG increased from 10% to 15%, LTCG remained exempt, and dividends remained exempt. STT was gradually increased.
In 2016, Arun Jaitley capped dividend tax at 10% for dividends over ten lakhs, while LTCG remained exempt and STCG at 15%. In 2018, LTCG was taxed at 10%, STCG remained at 15%, and dividends at 10% for dividends over ten lakhs. In 2020, Nirmala Sitharaman made dividends taxable at slab rate, and in 2024, LTCG is now 12.5%, STCG 20%, and dividends are taxed at slab rate.
This continuous flip-flop of tax policies is quite ludicrous. We need a streamlined, long-term plan. Looking at other countries, some have no distinction between short-term and long-term capital gains. For instance, in Japan and China, any capital gain is treated the same. The US, Australia, and India have a one-year holding period for LTCG.
Comparing global rates, India’s 12.5% with exemptions isn’t extremely draconian. Countries like Denmark charge 42%, Finland 34%, France over 30%, and so on. As we develop, our rates may reach those levels, though it feels harsh today without visible infrastructure improvements.
In conclusion, while the continuous juggling of rates is frustrating, 12.5% LTCG isn’t excessively high historically. However, the unfair increase in STT alongside other taxes needs addressing. We need a stable, long-term tax policy to foster investment confidence.
