By Ruma Dueby

On Christmas Day, PM addressed the nation on the radio, through his monthly “Mann ki baat” and this has spooked the marketmen completely. The very same traders who praised Modi to the sky for his ‘bold’ demonetization move were today seen criticizing him, questioning his objectives, asking the purpose behind the note ban, with some even wondering if he had gone cuckoo!

Only reason for this complete loss of faith – the PM in his speech apparently ‘hinted’ at Long Term Capital Gains (LTCG) taxes. What he actually said was - tax collection from capital market participants is low and attributed it to illegal activitiesand fraud.  How did the market construe this as LTCG tax on the stock market traders?

Maybe it was arrived at by putting two-and-two together. In an earlier speech near Mumbai, during the inauguration of the National Institute of Securities Marker campus, Modi has said that those who profit from the financial markets have to make a fair contribution to the nation-building through taxes. Thus co-relating both, the marketmen added it all up and panicked. Post demonetization, the fear is that anything could get announced and that is the reaction which we are seeing today on the bourses, trading continuously below 200 points.

Currently as per the tax laws, those who hold stocks for over a year do not need to pay any tax when they sell the share but if sold before 12 months, they will have to pay 15%.

The Finance Minister, Arun Jaitley, with an eye always on the market, saw the damage done and was very quick in issuing a response; he said, “this interpretation is absolutely erroneous; the Prime Minister has made no such statement directly or indirectly. I was present at the function at which this speech was given and therefore, I wish to absolutely clarify that there is no occasion or opportunity for anybody to reach such a conclusion because this is not what the prime minister said nor is it the intention of government as has been reported.”

But the market has refused to repose any faith into what Jaitley says and the selloff continued though it has found some kind of semblance as of now.

What todays behavior shows is that marketmen are OK with anything; absolutely anything unless and until it affects their stock market income.  But this is nothing new as the stock market is essentially a capitalist. That’s a known truth. When there is a pandemic, stock price of companies making the drug shoots up; sugar prices are expected to rise and what does the market do – celebrate with a surge in sugar scrip prices. The market shrugged off worries of growth due to demonetization, completely ignored the hardships faced by people across the country due to this move. All was shrugged off as a price one has to pay for a “clean” India. What happened to this thought process the moment they felt the PM could be looking at taking some money from them too? Obviously, like a spoilt child, it is sulking!

There is no doubt that the Govt always has an eye on the stock market and has done everything possible to placate the FIIs, most of the times at the cost of the retail investor. Yes it has cracked down on P-notes and round-tripping. The markets were routed for days in 2015 when a mere report was put out by the Supreme Court appointed special investigative team's (SIT's) on P-notes and it had made “recommendations” on how it could clamp this done. Mind you, these were not even considered for implementation and yet the markets had shown how worse things could get it indeed implemented.

The same thing happened when GAAR, an acronym for General Anti-Avoidance Rules was suggested. The markets literally fell through the floor and the Govt had to scuttle all talk on GAAR. Or remember retrospective MAT?

Such is the violent way in which the market behaves every time anything is announced which affects the traders income directly. This is but a very natural way to react but the question is – should the Govt always work towards placating the market while those not in the market pay a price?

The argument is not about the imposition of a tax; it is more about the pressure tactics which markets use every time things don’t go the way they want it to.

If we had the faith that PM did the right thing by going for demonetization, let us keep the faith intact that he will always have the country’s interest first.