Mumbai, July 8: Hope turned into despair on the bourses as investors tried to make sense of a turnover tax, fuelling a bearish onslaught that tightened towards the end and pulled the sensex 112 points into the red.

Around noon, the 30-share sensex pierced the psychological 5000 mark as the finance minister raised the foreign direct investment limits on insurance, telecom and civil aviation and the markets appeared to have reacted well to the proposals.

It was a red herring for the markets, brokers felt in hindsight. What came later proved to be a dampener as marketmen even considered going on strike to protest against the turnover tax — said to be five times more than the brokerage on investments nowadays.

“Imposition of turnover tax is a disaster,” wailed Arun Kejriwal of Kejriwal Research & Investment Services.

Turnover tax preoccupied the minds of brokers, who ignored the good aspects of the removal of long-term capital gains tax and the reduction of short-term capital gains tax from 30 per cent to 10 per cent.

The benchmark index touched a high of 5004.17 and a low of 4,808.63 in intra-day trade today, indicating a range of nearly 200 points.

Removal of long-term capital gains tax rewards the patient investor who takes a risk by investing in the markets. The imposition of turnover tax, which would entail more tax payment for frequent transactions also benefits the long-term investor.

Typically, two-thirds of the market volume comprises intra-day, market-maker and squaring-up transactions and only about one-third results in delivery.

“Overall, the budget looks very good,” said Sashi Krishnan, CEO of Chola Mutual Fund. “The turnover tax has got the market worried. Administering the tax will be a major problem for the brokerages,” he said.

The finance minister also proposed a hike in sectoral caps in the telecom, civil aviation and insurance sectors. It gave a clear signal that the government is keen on continuing the reforms process.

Bharti Televentures, the mobile telephony player, ended with a small gain, up 2.27 per cent to Rs 148.55 — quite a climbdown from its day’s high of Rs 165.40 on the finance minister’s proposal to hike FDI limit to 74 per cent.

Tractor manufacturer Punjab Tractors also inched up as the budget did away with the 16 per cent excise duty. Punjab Tractors was up 4.86 per cent to Rs 221.35, Eicher up 9.01 per cent to Rs 95 and M&M up 5.62 per cent to Rs 501.15 as fresh buying erupted after the finance minister’s announcement.

Computer maker HCL Infosystems was up 9.71 per cent to Rs 618.55 as Chidambaram exempted computers from excise duty.

Among the losers were Tata Steel, surrendering 6.28 per cent to Rs 296.35 as the government punished the steel companies by proposing a hike in excise duty to 12 per cent from 8 per cent. The public sector SAIL was also a loser.

“The markets will see a further erosion of 150-200 points,” declared Kejriwal. However, many in the markets hoped that the proposals would be analysed better and a rethink could also well be on.

Every developed market where turnover tax was introduced saw a drastic slide in volumes. However, over the long term, turnovers picked up smartly as investors got used to the concept, say analysts.