Increased spending: Mr Chidambaram proposed to raise government spending to Rs 16.65 trillion against expectations of a closer check on spending to curtail the fiscal deficit to 4.8 per cent of GDP in FY14. "The biggest surprise in the Budget was the sizeable increase in public spending, including on welfare programmes, which will be financed largely through revenue raising measures. This will have surprised and disappointed many..." global investment bank Credit Suisse said.
Quality of spending: Prabhat Awasthi, managing director & head of equity research at Nomura India said the growth in expenditure is on account of social schemes, not on capital expenditure, which is an indicator of an expansionary Budget.
Higher taxes: The government sought to increase taxes on certain individuals and companies. Those tax proposals hit stocks. The government also disappointed some investors by not announcing a cut in debt withholding tax."The absence of a cut in withholding tax also disappointed. Debt flows would have increased had the government cut the WHT, which would have been positive for rupee as well," said Vikas Babu Chittiprolu, a senior foreign exchange dealer with state-run Andhra Bank.
Foreign investors turned net sellers: A perception that the government lacked major initiatives to woo foreign investors added to the disappointment given net inflows from abroad play a key role in share performance. According to provisional data FIIs were net sellers in the markets today weighing on sentiments.
Regulatory worries: Double tax avoidance agreements also hit shares after the finance ministry said tax residency certificates were no longer sufficient to claim benefits.
Banking stocks led the selloff: State-run lenders declined after the government announced a higher-than-expected gross market borrowing target (at 6.29 trillion rupees in 2013-14 above estimates of less than 6 trillion rupees) as part of its 2013-14 budget, raising concerns about liquidity in the banking system.
Private sector lenders also fell after the finance minister proposed to extend a scheme that provides farmers with low-cost loans to private banks.
Investors expressed broad disappointment over the budget, with incentives such as reducing the securities transaction tax on equity futures and imposing a transaction tax on futures contracts of non-agricultural commodities not seen as big enough to sway investors.\
A surprise hike in tax on sports utility vehicles hit Mahindra & Mahindra. Shares in Adani Ports and Special Economic Zone fell after the finance minister proposed setting up two new ports in Andhra Pradesh and West Bengal, raising worries about more competition in the sector.
Derivatives expiry: Some analysts like Manishi Raychaudhri of BNP Paribas Securities said the selling could have been on account of the contracts expiry today.
(With inputs from Reuters)