Year in review: 10 key events that charted market direction in 2018

LTCG, PNB scam, US-China trade war and MF reclassification are among the events that impacted the market this year

The re-introduction of long term capital gains tax, mutual fund reclassification, ASM list and PNB scam are among 10 events that shaped the markets in 2018.

As compared to stellar returns of around 27-29 percent on benchmark indices in 2017, they have had a subdued 2018, marred by market-corrective events.

So far in 2018, both Sensex and Nifty have returned 5-7 percent, but deeper cuts have been reported in the mid- and small-caps segments. They have fallen close to 16-18 percent so far.

Long term capital gains (LTCG) tax

One of the biggest and most impacting decisions for the market this year was the re-introduction of long term capital gains (LTCG) tax.

Finance Minister Arun Jaitley, in his Budget 2018 speech, re-introduced the tax mechanism, and levied a tax on profit generated from assets such as shares and share-oriented products. Investors had to pay 10% tax on profit exceeding Rs 1 lakh made by selling any asset, including shares, mutual funds and other shares-oriented schemes.

Soon after the announcement in the Budget, the market fell in the following sessions with several analysts terming the measure as an anti-investor move.

Mutual fund reclassification

The year also saw a complete overhaul of categories for mutual funds. As per a mandate, implemented by mutual funds now, a fund house could offer 10 types of equity funds, 16 bond funds and 6 categories of hybrid fund schemes.

This reclassification ensured that fund houses had to rename and rework their schemes and reallocate their investor money as well, which resulted in a short-term turmoil in the equity markets.

PNB Scam

In February, the Street was hit by the news of a big scam surrounding Punjab National Bank amounting to more than USD 2 billion.

The scam was said to be carried out of the bank’s Brady House branch in Breach Candy area of Mumbai. The branch issued letters of undertaking (LoUs) to help companies owned by Nirav Modi and Mehul Choksi get forex credit from Indian banks abroad.

Further, there was no collateral or record of LoU issuance in the bank’s core software as per protocol. On renewal, fresh LoUs were issued to rotate this amount.

RBI Governor's resignation

Reserve Bank of India Governor Urjit Patel in a surprise announcement on December 10 said he has resigned from immediate effect on account of personal reasons.

This was a negative cue for the equity market, which opened in the red the very next day.

The resignation came in the wake of a bitter battle between the government and the Reserve Bank over issues such as liquidity management, the RBI's restrictions on NPA-laden banks and the usage of its reserves.

The friction came to light when RBI deputy governor Viral Acharya in a hard-hitting speech on October 29 warned the government that compromising with central bank’s independence could be “catastrophic”.

However, on November 19, India’s central bank seemed to signal a compromise with the government by agreeing to study a demand for sharing a part of its capital. And then came the resignation.

Patel’s term as RBI governor was to end in September 2019.

On December 11, the government named Shaktikanta Das, member of the 15th Finance Commission and former Economic Affairs Secretary, as the new RBI Governor.

ASM list

Stock exchanges introduced additional surveillance measures (ASM) as a measure to address increased speculations and a sharp fall in prices that followed.

In order to enhance market integrity and safeguard investor interest, the Securities and Exchange Board of India (SEBI) and the exchanges have been introducing various enhanced pre-emptive surveillance measures such as reduction in price band, periodic call auction and transfer of securities to trade-to-trade category from time-to-time.

In a notice, the BSE said, market participants may note that ASM framework should be in conjunction with all other prevailing surveillance measures being imposed by the exchanges.

The securities which are placed under the framework are reviewed on bi-monthly (two months) or periodical basis for the applicability of the ASM.

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