Banking stocks closed higher in trade today after Finance Minister Nirmala Sitharaman concluded her maiden Union Budget presentation. This was the first Union Budget speech by the Finance Minister Nirmala Sitharaman.
With no major surprises, the speech that lasted for over two hours failed to excite the market and cautious investors later sold their positions in absence of positive announcements for market. While Oil & Gas, Realty and Metal stocks were dragging the market further down, banking sector stocks, especially PSU Banks were enthused by Budget 2019.
FM Sitharaman specified multiple provisions and structural changes towards the banking sector, starting with provision of about Rs 70,000 crore in terms of additional capital infusion to state-owned banks to support credit improvement.
This bold move as per market experts was highly positive for the banking ecosystem and had to be strongly pursued.
Dr. Joseph Thomas, Head of Research, Emkay Wealth Management said, "An improvement on the interim budget with a number of reasonably good proposals on disinvestment, bank recapitalization"
In addition, the Budget has set a target of Rs 105,000 crore of disinvestment proceeds in FY 2019/20, adding that it will continue with disinvestment of PSUs in the non-financial space as well. In her speech, she mentioned that the government will take all the necessary steps to meet 25% public norm for state-run firms and further to raise foreign shareholding in all PSU to maximum allowed limits.
"The government has clearly laid its intention of taking further steps towards eliminating the use of cash in the economy," commented Amit Gupta, CEO and Co-founder TradingBells adding that a 2% TDS on large cash withdrawals (more than Rs 2 crore per year from a bank account) makes the intentions of the government clear."
"Besides, there are some steps towards providing relief to NBFCs, as PSU banks will get a one-time 6-month credit guarantee of Rs1 lakh crore to buy high-rated pooled assets of "sound" NBFCs," Mr Gupta added.
The Budget also proposed to provide PSU banks one-time 6-month credit guarantee of Rs 1 lakh crore to buy high-rated pooled assets of "sound" NBFCs, adding that fundamentally sound NBFCs will keep getting funding from banks, Mutual Funds.
Following the announcement, there was a surge in Public sector banking stocks, with a 1% rise on index. Shares of Corporation Bank, Canara Bank, UCO Bank, Kotak Bank were leading with 1% gains on BSE Bank index.
On NSE Nifty Bank, IndusInd Bank, Bank of Baroda, Kotak Bank, ICICI and SBI Bank and ICICI were also gaining, following the announcement, while IndusInd Bank, Kotak Bank, ICICI and SBI Bank were among the top gaining stocks on index Sensex 30 and Nifty50.
Finance Minister Nirmala Sitharaman also suggested that there is a need to give tax parity to non-banking finance companies and proposed to strengthen RBI's regulatory authority over NBFCs.
"Increasing the FDI limits in PSU should help the GOI to meet its divestment target," said Rajesh Thakkar, Partner/ Transaction Tax, Tax & Regulatory Services.
FM Sitharaman further mentioned that the NPAs by banks have reduced by Rs 1 trillion and added that NPA stress is to be separated from PFRDA.
To discourage cash payments and withdrawal from accounts, it was proposed that 2% TDS on cash withdrawal exceeding Rs 1 crore a year from 1 bank account. Additionally, it was declared that new 1, 5,10 & 20 coins to be available for public use soon.
Besides that she also proposed that taxpayers should get online pre-filled documents after govt secures data from banks, MFs, insurance companies. She further suggested Banks as well as the central bank to absorb charges on digital transaction.
Although except PSU bank and other banking indices, it was an overall bad news for the market.The trading volumes were down and Investors stayed largely unimpressed, which led to substantial fall in Sensex and Nifty post the budget as well.
Edited by Rupa Burman Roy