Finance Ministry emphasises on the fiscal and financial health of the economy

Stock indices moved up smartly on Monday while the rupee gained against the U.S. dollar as the Finance Minister, P. Chidambaram tabled his Interim Budget for 2014-15, which was broadly in line with market expectations.

Markets believe that the Finance Minister made an effort to strike a balance by giving thrust to financial health of the country in his Interim Budget proposals considering the political scenario.

The S&P BSE Sensex was up by 97.24 points to close at 20464.06.

Meanwhile, the rupee closed at 61.85 a dollar against its previous close of 61.93. While rupee’s gain was in line with the movement of other Asian currencies, Mr. Chidambaram’s attempts to reduce fiscal deficit targets helped the rupee gain.

Reflecting the mood of the economy, bank stocks went up by 1.21 per cent followed by power (0.96 per cent), automobile (0.76 per cent), healthcare (0.67 per cent), information technology (0.17 per cent), capital goods (0.11 per cent) and technology (0.01 per cent). “The provision for Rs.11,200 crore announced by the Finance Minister in the Interim Budget for the recapitalistion of public sector banks will provide the risk capital given the current level of stress as well as provide good buffer for growth capital for the (banking) industry as a whole,” said Monish Shah, Senior Director, Deloitte in India.

However, realty stocks lost 0.82 per cent, consumer durables 0.73 per cent, metal 0.71 per cent, oil & gas 0.49 per cent and fast-moving consumer goods 0.11 per cent.

Among the broader indices, BSE 100 gained 0.36 per cent. BSE-200 was up by 0.32 per cent. BSE 500 gained 0.27 per cent. Mid-cap stocks lost 0.18 per cent.Small-cap gained marginally by 0.01 per cent.

On the National Stock Exchange (NSE), Nifty closed at 6073.30 with a gain of 24.95 points.

The Finance Minister addressed three issues — financial prudence, financial health and fiscal stimulus, according to Nirakar Pradhan, Chief Investment Officer, Future Generali Life Insurance. “Overall,’’ said Dr. Pradhan, “on the backdrop of political scenario, rather than making the Interim Budget a populist one, Finance Minister strikes a balance by emphasizing on fiscal/financial health of the economy.”

The Interim Budget has alleviated market jitters by staying away from populist measures, reiterating fiscal consolidation path and lowering excise duty for certain ailing sectors such as automobile and capital goods despite limited headroom, said Anup Bagchi, Managing Director and Chief Executive Officer, ICICI Securities.

On an overall basis, the government has introduced a measured Interim Budget. The Finance Minister’s commitment to restrict the fiscal deficit to 4.6 per cent of GDP in 2013-14 and bring it further down to 4.1 per cent next fiscal has come as a silver lining.

Also, he has been able to cut down current account deficit (CAD) and expects it to decline to $45 billion this year from $88 billion last year.

“With a limited scope of manoeuvrability in an Interim Budget, the Finance Minister has managed to touch up on some of the key issues,” said Mr. Bagchi.

The government ensures Indian economy is on right path as far as fiscal consolidation and current account balance is concerned. Dr. Pradhan added “With a fiscal deficit target of 4.1 per cent for financial year 2014-15 and 4.6 per cent for financial year 2013-14, economy is well poised to receive confidence of foreign and domestic investors thus providing much needed support to rupee”.

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