Indian Equities Wipe Off $200 Billion Since Budget

Indian equities have wiped off $200 billion after the Modi government's July 5 budget increased taxes and offered little stimulus to revive sagging growth.

The negative sentiment eroded investor wealth—represented by BSE market capitalisation—worth Rs 14 lakh crore. The benchmark S&P BSE Sensex tumbled more than 8 percent during the period.

The depth of the selloff has been much higher than anticipated, Deven Choksey of broking firm KRChoksey, told BloombergQuint over the phone. “The markets are currently heading towards capitulation stage.”

Foreign investors pulled out more than $2 billion in July, the most in nine months, according to Bloomberg data, spooked by higher taxes on the wealthy and overseas funds. Finance Minister Nirmala Sitharaman, presenting her debut budget, also taxed buybacks to bring them on a par with dividends. Moreover, muted corporate earnings and the ongoing credit crunch have also been a drag on sentiment.

That comes as India struggles to revive consumer demand for everything from cars to bank loans. The central bank has warned of “signs of fragility” in some financial firms and is monitoring to prevent contagion and a potential surge in bad loans.

Lack of hope on policies is leading to selloff, according to Ajay Bagga, executive chairman of OPC Asset Solution. “There is very little policy intervention. Nobody is addressing it. The budget was pedestrian.”

He advised investors to “sit on cash” until there is some “real policy action” to arrest the fall in sentiment.

The Sensex briefly slipped below he 37,000, before closing just above the level today. Nifty 50 closed below the 11,000-mark. Both the indices ended 1.2 percent lower.

Watch Ajay Bagga's interview here