FM Sitharaman's LTCG tax remarks lift Sensex by 1,100 points. Can markets hope for a review?

Indian equities rose sharply in Tuesday’s afternoon session after Finance Minister Nirmala Sitharaman said discussions around long-term capital gains tax (LTCG) and securities transaction tax (STT) were ongoing, giving investors a fresh talking point at a time when markets are looking for relief after weeks of pressure.

Speaking at the Bloomberg New Economy Forum, Sitharaman said Indian and global investors have been commenting on long-term capital gains tax. She added that in India, the issue is also linked to transaction tax in the securities market. She said the debate on transaction tax and whether different asset classes should be treated similarly has been well discussed.

"LTCG, a lot of people are commenting on, both Indian and foreign investors," she said. "This debate on STT in market and question of treating all asset classes similarly, there is a lot of debate. It is healthy to have this debate."


The market read the comments as a sign that the government is aware of investor concerns around capital gains taxation and transaction costs. Soon after the remarks, the Sensex rose to an intraday high, gaining over 1,100 points, while the Nifty gained more than 350 points.

"India keeps macroeconomic fundamentals strong, and investors need not worry about fiscal discipline," she added.

The gains also came on a strong day for technology shares. The Nifty IT index rose 5%, led by HCL Tech, which jumped 8% after reporting strong quarterly results and better profitability metrics. Tata Consultancy Services, India’s largest IT services company, also gained 6% after its quarterly earnings last week.

"The quarterly numbers reported by Accenture, TCS, and HCLTech indicate that the worst of earnings growth concerns for IT companies might be behind us. This is triggering a value-buying opportunity in the sector," said Dharmesh Kant, head of equity research at Cholamandalam Securities.

IT stocks have had a difficult year. The Nifty IT index is still down 23% year-to-date as investors worried about slowing earnings growth and the impact of artificial intelligence on traditional software services. The latest results from TCS and HCLTech have helped ease some of those concerns, at least in the near term.

Broader market sentiment, however, remained mixed. Fourteen of the 16 major sectoral indices traded higher, but small-cap stocks slipped 0.7% after a 1.4% jump in the previous session. Midcaps rose 0.4%, showing that investors were still more comfortable buying largecap names than taking aggressive risks in the broader market.

Reports of rapid technological advances by Chinese chipmaker ChangXin Memory Technologies triggered a sell-off in global chip stocks, which could be a positive for India. South Korea’s tech-heavy Kospi slumped 6%, dragging the broader index of Asian shares outside Japan down more than 2%.

Back home, investors are also watching the Reserve Bank of India’s rate path after retail inflation rose more than expected to 5.54% in September. The concern is that sticky inflation could keep monetary conditions tight for longer.

Brent crude futures prices have remained above $100 a barrel, keeping inflation worries alive, especially after a weak monsoon.

Disclosure: This article has been written by Podishetti Akash, who is not a SEBI-registered Research Analyst or an Investment Adviser. Podishetti Akash and his ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclosures here.