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New capital gains tax bad news for market participants
August, 27th 2010

Media: In its current form, do you think the new capital gains tax regime in the Direct Taxes Code is a big set back for market participants?

Ambareesh Baliga: Yes, surely I think it's a setback for market participants, considering there was no capital gains on long term in the last 3-4 years.

This also led to sort of a bull run which you have never seen in the past. So with this introduction of capital gains clearly I see one thing happening, which is that all those people who are sitting on long term capital gains would book it and possibly buy back those shares. So it could be a good time for brokers possibly from January to March where these sort of transaction would happen because it would make a lot of sense for people to book out their long term capital gains and buy back the shares if they want to hold it in the portfolio so that your price of acquisition becomes higher.

Media: Do you think that at this point those that were dud stocks, and there are many out there that are basically just capital gains plays, they could be severely hit because that was the only game in town for many of the stocks and there are hundreds of such?

Ambareesh Baliga: Absolutely. If you see post the announcement, you had all these dud stocks which are Rs 2 stocks, Rs 5 stocks actually becoming multibagger without any change in fundamentals. It was only based on stories which are floated that these stocks moved up and clearly I think all the market participants know as to why those stocks have moved up.

Media: How do you think the market would react to this, especially the adjustment of long term as well as short term capital gains as regular income?

Ambareesh Baliga: All of us were clear that this wass on the way, it was only a question when it gets tabled in the parliament and gets passed there. So I do not think that's going to be a major surprise but yes I think overall it is a bit negative for the market.

 
 
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