Investors are admiring finance minister Nirmala Sitharaman’s chutzpah in reining in the fiscal deficit and they believe the rash of capital gains taxes are only a damper and the benchmark indices will resume their northward journey as the heat and dust of the levies settle down.

The benchmark Sensex on Wednesday lost 280 points to settle at 80148.88 after crashing 678.53 points to 79750.51 during intra-day trades led by selling in financials and auto stocks. The Nifty dropped 65.55 points to 24413.50.

The rupee closed at an all-time low against the dollar as a weak stock market weighed on the currency. The domestic unit settled at 83.72 to the greenback over its previous close of 83.69.

Analysts said the fiscal prudence shown in the budget — the FM has lowered the deficit to 4.9 per cent of GDP from 5.1 per cent in interim budget — could lead to a rating
upgrade and is expected to lead to higher inflows from foreign portfolio investors (FPIs).

“The budget event has gone by leaving a mixed bias while reshuffling of capital gain tax is only a short-term negative surprise. The broad market seems to be losing momentum due to lack of further traction,” Vinod Nair, head of research, Geojit Financial Services, said.

Nair added that domestic investors are biased but strong government fiscal and growth policy is attractive for FIIs, which will help to hold the ground.

“The markets experienced some decline after investors’ mood turned sour post an unexpected increase in short and long-term capital gains…

“We anticipate the market to quickly discount the budget and shift its focus to corporate earnings growth, which has remained marginally below our expectation. Thus, we expect the market to consolidate in the near term,’’ Siddhartha Khemka, head retail research, Motilal Oswal Financial Services, said.

"Profit-taking continued as investors cut their position in banking and automobile stocks, which led to a fall in key benchmark indices," Prashanth Tapse of Mehta Equities said.

Revenue secretary Sanjay Malhotra said the proposals will not hurt small investors holding onto shares for over one year.

“We would encourage people to hold on to these shares for longer period of time because that is investment.

"Second, this increase in LTCG impinges mostly on the higher incomes, not on the middle and lower income class category. The benefit of ₹1.25 lakh exemption for LTCG helps middle and low-income categories,” Malhotra said.