Sensex Finishes Marginally Lower As LTCG Tax Proposed

Indian share markets finished in red after finance minister Arun Jaitley announced a long-term capital gains tax for investing in equities. At the closing bell, the BSE Sensex closed lower by 58 points and the NSE Nifty finished lower by 11 points. The S&P BSE Mid Cap finished down by 0.5% while S&P BSE Small Cap finished up by 0.6%.

Losses were largely seen in consumer durables stocks, pharma stocks and energy stocks. Capital goods stocks and auto stocks witnessed majority of the buying momentum.

Asian stock markets finished mixed as of the most recent closing prices. The Nikkei 225 gained 1.68%, while the Shanghai Composite & the Hang Seng fell 0.97% and 0.75% respectively. European markets are higher today with shares in France leading the region. The CAC 40 is up 0.54% while Germany’s DAX is up 0.46% and London’s FTSE 100 is up 0.13%.

Rupee was trading at Rs 63.61 against the US$ in the afternoon session. Oil prices were trading at US$ 65.38 at the time of writing.

The Market cap to GDP ratio for Indian companies is close to dangerously high levels. While this is still some way off the peak of FY-08, when it had once reached close to 150, it’s relatively high.

FY17 saw this ratio reach close to 80. It is also expected to increase further given the moderate growth expectations in India’s GDP for FY18. Warren Buffett once considered this as one of the best valuation metrics to gauge the markets.

Past history shows some correlation between the ratio and the share market. 2008 saw Sensex decline by 38%, when this ratio crossed the 100 mark. Also, the market has bounced back sharply when this ratio was low.

The Warren Buffett Indicator Suggests Indian Equity Market Is Overvalued

The basic assumption in this ratio is that whenever the GDP of the country grows, the market performance will reflect it. Also, when stocks do well, it can be extrapolated to assume the Indian economy is doing well.