LTCG tends to cap returns in February and March

Finance Minister, Arun Jaitley in his budget speech introduced LTCG which will be applicable from April 1, 2018 onwards. The LTCG, however, is being grandfathered . The stock highs of January 31 will be used to index the LTCG gains. This means when you sell a stock after April 2018 for price more than the high of the stock price on January 31, 2018, LTCG of 10 per cent will be applicable on the gains, which is exempt for gains uptill Rs. 1,00,000.

However, what should investors expect in February and March? We believe the markets are ideally capped at the level of January 31, 2018 for the month of February and March. The moment the stock reaches a level higher than the January 31, 2018 level, the selling pressure on the stock will build up as investors are better-off booking profits rather than paying tax by holding on to the stock. This might curtail further upside opportunities in fundamentally sound stocks which report superlative results.

We see this window of February and March to be locked at upper limit of January 31 level. This has lead to 10-15 per cent of the downfall we are seeing in the market. However, we expect last week of March to provide new low-level entry points. With transition towards LTCG starting in April, it might spark a fresh buying trend.