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No dream budget for the market

Easy foreign investments and fiscal deficit are positive factors but a hike in indirect taxes hurts the Sensex.

B.S. Srinivasalu Reddy | March 1, 2011 | Updated 09:31 IST

A mid the jitters and wild gyrations of the Union Budget , Indian bellwether Bombay Stock Exchange (BSE) Sensex closed the session with a gain of 122.49 points or 0.69 per cent. Though the Budget has projected the economy entering the high growth trajectory of nine per cent plus in the coming fiscal, it lacked any reform edge.

With investors keeping their fingers crossed, the Sensex lost early optimism and touched the day's low of 17,718.88 points by the time finance minister Pranab Mukherjee rose to deliver his Budget speech. As the speech progressed it mounted the peaks, before the hike in indirect taxes disappointed the market, pulling it down to settle with marginal gains. At one point during intraday trade the Sensex was gaining 596 points or 3.36 per cent.

Opening the gates for more foreign investors seeking a share of gains from the investments in the Indian mutual fund space is also considered to be positive. Foreign investment is necessary at a time when inflows from Indians working abroad are falling and the current account deficit is mounting.

The other thing that enthused the markets a bit was the moderation in fiscal deficit during 2010-11 at 5.1 per cent compared to the target of 5.5 per cent. The roadmap for the reduction of the fiscal deficit over the coming two to three years has been laid down to make this figure closer to the FRBM (Fiscal Reforms and Budget Management) Act target of three per cent.

"This is very encouraging. Global investors and capital market is expected to like this," said Jagannadham Thunuguntla, strategist and head of research of SMC Global Securities. Apurva Shah, vice-president and head (institutional equities), Prabhudas Lilladher, said, "Overall we come away somewhat positive with this Budget's intention of reducing deficits, not increasing taxes and curbing expenses. We are also hopeful about the government's ambitious legislative roadmap for the session and the year."

The government hopes to pass the GST Bill, New Companies Bill, FRBM Amendment Bill, Direct Taxes Code (DTC) Bill and Public Debt Management Office Bill this session.

The Budget also envisaged huge social spendings and announced several schemes to boost agriculture production, particularly pulses, which pushed inflation to over 17 per cent in the recent past. Hanish Kumar Sinha of the National Collateral Management Services Ltd (NCMSL), said, "Comprehensive plans have been drawn to tackle the problem of shortage of vegetables, millets (bajra, jowar, ragi), animal protein (through livestock development, dairy farming, piggery, goat rearing and fisheries) and fodder with the aggregate plan allocation of Rs 1,200 crore."

Auto makers were the surprise winners on Monday, as the Budget abstained from raising excise rates for the industry, as was expected. Maruti Suzuki India Ltd (MSIL) and Mahindra and Mahindra (M&M) posted gains of over three per cent.

Tobacco makers were relieved of higher taxes in the Budget, pushing up cigarette maker ITC Ltd by 8.2 per cent to Rs 169. Cigarette makers are the general favourites for higher taxes in every Budget. "Key sectors expected to benefit are banking and financial services (due to low borrowing programme), real estate (due to hike in interest rate subvention), cigarettes (due to no increase in taxes) and automobiles (no increase in excise). Key losers are information technology (MAT or minimum alternative tax now applicable on SEZs), ports (MAT applicable on SEZs) and iron ore exporters (hike in duties)," said Shah.

Nifty showed shooting star candlestick pattern on the daily charts, which after a hammer candlestick pattern shows indecision among bulls and bears. "Neither bulls nor bears have been able to take advantage. Selling pressure may be continuing below 5,300 levels. On the other hand, if Nifty sees support at 5,300 levels, then some recovery may also be seen," said Puneet Kinra, senior technical analyst (equity research) of Bonanza Portfolio.

Courtesy: Mail Today 

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