Markets were disappointed after the 2012-13 Budget proposed increasing some corporate and individual taxes and after securities transaction tax was lowered but not eliminated.
Total budget expenditure will rise by an unexpectedly high 16 percent in the fiscal year that begins on April 1 to 16.65 trillion rupees, even as the fiscal deficit for the current year will fall to 5.2 percent of gross domestic product, besting a revised target of 5.3 percent.
The bigger-than-expected outlay for the coming fiscal year will be funded by higher revenue including new taxes on the rich and large companies. Uday Kotak, executive VC & MD of Kotak Mahindra Bank said profitable corporates will have to pay a higher corporate tax.
The declines were led by banking stocks that slumped over 2 per cent.
PSU banks such as State Bank of India and Punjab National Bank traded with over 4 per cent cuts as the government's gross market borrowing is seen at Rs 6.29 trillion in 2013-14, higher than market estimated, which is negative for banks as it is likely to trigger worries over liquidity in the system.
"PSU banks need more equity dilution which will increase the supply of paper and depress prices," Vivek Mehra, executive director (tax & regulatory services) at PwC India said.
Metal and capital goods stocks also traded with over 2 per cent cuts. Auto stocks fell on the hike in excise duty on sport utility vehicles (SUVs) to 30 per cent from 27 per cent. This is seen hitting demand for such vehicles made by companies that include Mahindra & Mahindra and Tata Motors.