(Adds details from budget, updates shares, analyst comment)
By Chris Thomas
BENGALURU, Feb 1 (Reuters) - Indian shares fell on Saturday to their lowest closing level in more than three months after the annual federal budget failed to address key concerns among investors over taxes on long-term capital gains.
Finance Minister Nirmala Sitharaman, presenting the 2020/21 budget, outlined several measures to boost growth, including a $40 billion injection into farming and personal tax cuts.
But analysts said financial markets were mainly looking for the reduction or removal of taxes on long-term capital gains.
The NSE Nifty 50 index closed 2.51% lower at 11,661.85 in a special trading session on Saturday, while the benchmark S&P BSE Sensex dropped 2.43% to 39,735.53.
“Markets had very high expectations from the budget, including that taxes on long-term capital gains would be removed, which would have incentivised people to hold on to shares for a longer time,” said Deepak Jasani, head of retail research at HDFC Securities Ltd in Mumbai.
“These expectations have not been met.”
Sitharaman said the fiscal deficit for the current year would widen to 3.8% of GDP, compared with a 3.3% target. For fiscal 2020/21, Sitharaman set a target of 3.5%.
However, Moody’s Investor Service said that sustained weaker growth and tax cuts would make gross revenue targets difficult to achieve, adding that the government also had limited room to reduce spending without further weakening growth.
India is grappling with its worst economic slowdown in a decade. The government estimates economic growth this year, which ends on March 31, will slip to 5%, the weakest pace since the global financial crisis of 2008-09.
Finance stocks were the biggest drag on the bluechip indexes, with HDFC Bank Ltd and Housing Development Finance Corporation Ltd shedding 2.3-6%.
The Nifty Private Bank Index dropped 3.1%.
Conglomerate ITC Ltd slumped 6.9% to its worst close since May 2016.
State-run IDBI Bank Ltd, however, surged over 18%after Sitharaman said the government would sell its remaining stake in the bank to private retail and institutional investors. The stock settled up 10.2%.
Mid-cap and small-cap shares, which outperformed bluechip stocks in January in the run up to the budget, slid on Saturday. The Nifty Midcap 50 Index fell 3.1% to an over three-week low.
Realty stocks were among the worst hit, with the Nifty Realty Index sliding 7.9%.
The rupee and bond markets were not open on Saturday, and will resume trading on Monday. (Reporting by Chris Thomas and Chandini Monnappa in Bengaluru Editing by Shri Navaratnam and Neil Fullick)