The stock markets cheered the efforts of the Union Finance Minister Pranab Mukherjee for setting the trend for the next four years by announcing the fiscal consolidation roadmap and the continuation of fiscal stimulus measures.
The benchmark Bombay Stock Exchange 30-Share Sensitive Index (Sensex) closed up by 175.35 points or 1.08 per cent at 16429.55. A broader 50-Sahre Nifty closed 62.55 points or 1.29 per cent up at 4922.30 compared to its previous close of 4859.75.
“The stimulus measures helped stocks in sectors such as real estate and auto, said Sukumar Rajah, Managing Director & CIO – Asian Equities, Franklin Templeton Investments. Banking stocks also got a boost – the government is providing a grant to PSU banks to ensure that Tier I capital is at 8 per cent. Sectors such as infrastructure development could be impacted by the MAT increase and excise duty hikes would affect cigarettes and cement.
The biggest gainer was the BSE auto index which was moved up by 4.74 per cent. This was followed by metal by 2.58 per cent and Banks by 2.26 per cent. On NSE too the bank stocks gained by 2.17 per cent.
Other broader indices also gained smartly: The BSE midcap stocks were up by 1.47 per cent, smallcap by 1.08 per cent and BSE 500 by 1.33 per cent.
The stock indices remained in the positive territory through out the day. The Sensex which was around 50 points up at the beginning of he Budget presentation, shot up by around 420 points as Finance Minister announced a slew of investor-friendly measures. However, it pared more than half of its gains in the last hour profit booking by investors.
“We remain positive about the medium to long term direction of the markets, as India’s growth momentum increases and companies benefit from the higher demand for goods/services. However, short term direction depends on global liquidity situation and risk appetite given the recent developments on the sovereign front,” Mr. Rajah added..
“Earnings growth has been positive and while valuations are closer to long term averages, we believe that India’s growth potential warrants a valuation premium. Our interactions with long term global investors clearly indicates a growing appetite for India and this along with a large savings pool could provide liquidity support to the market,” said Mr. Rajah.
“The Union budget is aimed at strengthening the pillars of Indian growth story which are consumption and infrastructure build up,” said Navneet Munot, Chief Investment Officer, SBI Mutual fund. The government stimulus which helped the economy weathering the global downturn has partially been rolled back while paving the way towards fiscal consolidation. Accepting the recommendations of Thirteenth Finance commission and reduction in the fiscal deficit will go a long way in enhancing macro-economic stability.
“Fiscal deficit at 5.5 per cent of GDP and net market borrowing for the next year are in line with market expectations and will sooth fears of crowding out and sharp spike in interest rates,” said Mr. Munot.
Measures on the taxation front and spending in key government programmes would keep the consumption story intact while some visible moves have been made to ensure increase in the pace of infrastructure build up. The long ranging reforms like roll out of GST, Direct tax code, financial sector reforms, subsidy reforms with better targeting through Unique identification Number, will assist in increasing the growth potential of Indian economy. Though no major surprise, said Mr. Munot, budget should be taken positively by both equity and the bond market.
Markets were also enthusiastic with the announcements made by the Finance Minister which would helpful for individual investors. “While the market reacted positively to the budget announced, common man (“aam aadmi”) should be happy with proposed relief to individual tax payers following the changes in income tax rates. This will provide them with more disposable income. Finance Minister also extended income tax exemption to investment in infrastructure bonds by up to Rs 20,000 over and above the existing limit of Rs one lakh, which would again benefit the income tax payers,” said A. Balasubramanian, CEO, Birla Sun Life Mutaul Fund.
Providing benefit in the form of interest subversion to low cost house buyers in the under Rs 20 Lakh category is “another very good move given the need of the population.”
However, India cannot be insulated from the global events. As the event is behind us, Mr. Munot said that the market would now focus on cues from global markets, incremental economic data and corporate earnings.
