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Market gives cold shoulder to Budget, Sensex dips 209 pts

VOLATILE MARKETS: April rate cut hopes dim as investors doubt FY13 deficit target

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Investors gave a thumbs down to the Union Budget for 2012-13, as they lowered the bets on the central bank cutting rates in April after Finance Minister failed to address concerns over the ballooning fiscal deficit.

The Bombay Stock Exchange (BSE) benchmark index, the Sensex, which was up about 50 points before Mukherjee started his Budget speech, gyrated between gains and losses for about two hours, till he finished. The 30-stock index finally closed down 1.19 per cent, or 209.65 per cent, at 17,466.20. 21.

At the National Stock Exchange (NSE), the 50-stock index dropped 1.16 per cent, or 62.60 points, to 5,317.90.

Price in Rs 16-Mar-12 % chg*
ITC 216.10 3.65
Mah & Mah 676.95 2.71
HUL 390.45 0.59
Maruti Suzuki 1373.65 0.52
Coal India 342.25 0.44
Price in Rs 16-May-12 % chg*
Sun Pharma 545.05 -7.09
ONGC 273.30 -4.66
Jindal Steel & Power 575.25 -4.23
NTPC 172.70 -3.82
Tata Power 105.65 -3.65
* Over Previous Close

As expected, the government is set to miss its target of 4.6 per cent for the present financial year by a wide margin. It is now expected to be 5.9 per cent of gross domestic product (GDP).

For financial year 2012-13, the finance minister has projected fiscal deficit at 5.1 per cent of GDP, which market experts believe is difficult to achieve.

“Investors have doubts over the 5.1 per cent fiscal deficit target for FY13. The finance minister’s revenue assumptions are aggressive and the subsidy bill might be higher than estimated,” said Amit Rathi, managing director at Anand Rathi Financial Services. “Chances are RBI may not cut rates in April. That’s why the market has reacted in a negative manner,” he added.

“The government’s decision to persist with status quo means the gap between India’s performance and its potential will persist,” said Vetri Subramaniam, chief investment officer at Religare Mutual Fund.

Among the major losers on the Sensex, were Sun Pharmaceuticals, which slumped 7.09 per cent to Rs 545.05, ONGC by 4.66 per cent to Rs 273.30 and Jindal Steel 4.23 per cent to Rs 575.25.

Market breadth was negative on the with nearly two stocks declining for every advancing stock. Among the sectoral losers, Oil & Gas Index fell 3.32 per cent, Power Index declined 2.98 per cent and Capital Goods Index shed 2.94 per cent.

“This is just a knee-jerk reaction. Investors who had hoped for a reform-oriented Budget might have booked profits as those expectations did not materialise,” said Dinesh Thakkar, chairman and managing director at Angel Broking. “Expectations were very low from the Budget. It is realistic and believable,” he added.

In its mid-quarter monetary policy review statement on Thursday, the Reserve Bank of India (RBI) had said credible fiscal consolidation would be an important factor in shaping the central bank’s inflation outlook, which, in turn, will determine the timing and magnitude of future rate actions.

“The market will require the government to take the fiscal consolidation roadmap ahead with possible increase in petrol prices which will be crucial to providing RBI headroom for significant rate action,” said Sankaran Naren, Chief Investment Officer - Equity, ICICI Prudential AMC.  “Hence, while the blueprint for growth and fiscal roadmap is ready, the outcome will ultimately depend on effective implementation and subsidy management.”

India was the worst performing market in Asia on Friday. Japan’s Nikkei 225 gained 0.06 per cent, while China’s Shanghai Composite Index gained 1.3 per cent. Similarly, Taiwan’s Taiex declined 0.82 per cent and Hong Kong’s Hang Seng saw a decline of 0.17 per cent.

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