As Budget fails to lift stocks, it's back to global cues

The Budget failed to lift stock markets, with benchmark indices ending near their 21-month lows. The government's promise to stick to the fiscal-deficit target helped bond and currency markets. However, unexpected taxes, such as the one on domestic crude oil or on dividend distribution, hurt stock prices. Like any Budget Day, the stock prices gyrated, and the Sensex swung 850 points, touching a low of 22,495 and a high of 23,343.

The market traded a bit negatively nearly 45 minutes into the Budget speech. But as markets in Europe opened weak, the correction got steeper as foreign institutional investors pressed sales amid mention of Dividend Distribution Tax and Securities Transaction Tax (STT) with the Sensex plunging 660 points, or 2.8 per cent. But, the government sticking to fiscal-deficit figures sparked a rally in the bond markets and helped the stock market stage a dramatic 850 points recovery from the lows. At a point, the Sensex was up 190 points, recovering from a fall of 660 points. The markets failed to hold on to the gains on sustained selling by foreign investors due to weakness in the global markets.

The benchmark Sensex finally ended 0.7 per cent, or 152 points lower, at 23,002. The Nifty-50 lost 0.6 per cent, or 43 points, to close at 6,987. Shares of ONGC (Oil and Natural Gas Corporation) plunged 10 per cent on the government's decision to levy 20 per cent cess on domestically produced crude oil. Maruti Suzuki fell five per cent on the proposal to levy infrastructure cess between one and four per cent on cars.

 

"The market performance was lukewarm as the Budget announcements were normal and not path-breaking. There is not much the Budget can do to prop up markets in the near term. The market will once again be guided by what is happening globally," said Shankar Sharma, vice-chairman and joint managing director at First Global.

Weakness in the global markets, particularly China that fell 4.6 per cent, also weighed on investor sentiment on Monday.

"It would be too optimistic to say the Budget would result in a major turnaround in market sentiment. The volatility will continue, driven by events in China and the US. However, the commitment to macroeconomic stability and fiscal discipline will make our markets stronger," said Leo Puri, managing director, UTI Mutual Fund.

Finance Minister Arun Jaitley's promise to stick to the fiscal deficit targets of 3.9 per cent in FY16 and 3.5 per cent in FY17 sparked a rally in the bond prices, with yields on the 10-year benchmark government security softening as much as 15 basis points to end at 7.62 per cent.

The rupee ended at 68.42, against previous close of 68.63 per dollar.

The softening of yields raised hopes of an interest rate cut by the Reserve Bank of India (RBI), stoking a rally in banking shares. ICICI Bank gained three per cent, while State Bank of India and HDFC Bank added 1.5 per cent each. Most public sector banks, however, came off sharply from their day's highs after Rs 25,000-crore re-capitalisation announced disappointed the market.

"The Budget was better than what the market had expected. An important event risk is out of the way and once again our markets will be guided by global markets. The fiscal discipline in the Budget has raised hopes of a rate cut. The stability in the bond and currency markets might put an end to India's recent underperformance," said Dharmesh Mehta, managing director and chief executive, Axis Capital.

Indian market, having come off 11 per cent so far this year, is one of the worst-performing markets globally. The benchmark Sensex ended February with losses of 7.6 per cent, its worst monthly setback since November 2011.

Foreign investors sold shares worth over Rs 2,000 crore, while domestic investors net-bought shares worth Rs 1,445 crore on Monday, provisional data showed.

The cash market turnover on Monday at Rs 29,483 crore on both the exchanges was nearly 50 per cent higher than this year's daily average turnover. Similarly, the turnover in the derivatives segment was 27 per cent more at Rs 389,042 crore.

String of tax sops for GIFT City

India's first International Financial Services Centre (IFSC) being built at GIFT City at Gandhinagar got a string of sops, as the finance minister announced a policy package to facilitate setting up of international financial centres in India.

This includes exemption from dividend distribution tax, securities transaction tax (STT), long-term capital gain tax and commodity transaction tax. This reduction in MAT provides a competitive tax regime to IFSC at GIFT City. The Budget also proposes that the gains arising from transfer of such long-term capital asset shall be exempt from tax. Similarly, the transaction in foreign currency of sale of commodity derivatives taking place on a recognised association established in IFSC will not be liable to commodity transaction tax.