Wayward trading hallmark of today's session

A roller coaster ride was the order of the day on the bourses today as investors tried to strike a balance between unchanged corporate tax and unfounded fears of a rise in short term capital gains tax.

The Sensex today ended the day with a fall of 541 points, at 12,938.09.

The market had initially recovered after a weak opening. The benchmark Sensex fell 677.92 points at the onset of trade, to a low of 12,800.91. The initial drop was due to setback in equities across the globe.

The recovery started shortly after and lasted till the early-afternoon, when the finance minister dwelt on various spending plans and on indicate tax. The BSE Sensex reached 13,298.52 at 12:19 IST, the highest point of the day (though even at that level it was down 180 points over the previous day’s closing).

At that juncture, a sudden sell-off gripped the market which took Sensex to 12,948 at 12:40 IST, after the finance minister raised dividend distribution tax from 12.5% to 15%. The sharp fall was also due to no reduction in 10% surcharge on corporate tax, which was widely expected to be lifted in the next fiscal. At 12,948, the Sensex had lost 530 points for the day. The finance minister, however, restricted this benefit (of cut in 10% surcharge) only to firms with a taxable income of Rs 1 crore, or less.

A recovery began again from this low, taking the Sensex to 13,226 by 13:09 IST. At that level, the Sensex was down 253 points for the day. A sell-off again gripped the bourses, and the Sensex eased to 12,898 by 15:25 IST.

Between some of the vital tops and bottoms of the day, the Sensex swung a massive 1,274 points. It swung 497.61 points between the day’s low of 12,800.91 and the day’s high of 13,298.52.

The turnover on BSE surged to Rs 5683 crore from Tuesday’s Rs 4018 crore. Turnover on NSE’s derivatives segment surged to Rs 49408 crore from Tuesday’s Rs 31766.48 crore.

Nifty March 2007 futures were at 3,715, compared to the spot Nifty closing of 3,745.30.

Though there was no cut in corporate surcharge, there was also no increase in the securities transaction tax (STT), no hike on short-term capital gains tax and no hike on long-term capital gains tax on selling of shares. Long-term capital gains tax remains zero. The market had feared an increase in STT. Marketmen had also feared an increase in short-term capital gains tax from 12.5 - 15% from 10%.

The finance minister also said that measures will be taken to allow short-selling by institutional investors, which has to be backed by delivery.

The market’s favourite sectors IT, cement and construction tumbled. The cement sector, which has huge positions built up, tumbled after the finance minister announced price-based levy of excise duty on cement. IT stocks declined after the government brought stock option plans under fringe benefit tax.

Indian bourses had already seen a correction over the past few days on apprehensions that the Union Budget may spring some nasty surprises. The fall was also because of concerns that rising interest rates may impact equity valuations and a big IPO pipeline, which may suck out liquidity from the secondary market. At current 12,938.09, the Sensex is off 11.6% from the lifetime high of 14,652.09 attained on 8 February 2007.