Market rises to the occasion

The markets gave the Budget a thumbs-up today, mainly reflecting relief that the finance minister has rolled back only part of the fiscal stimulus. Widening income slabs that lowered tax rates for middle-income earners and the promise to rein in the fiscal deficit were the other positive signals.

Market players were unanimous that the Budget would boost growth and corporate earnings. “The key positive and trigger for the markets was the 5.5 per cent fiscal deficit target,” said Vikram Kotak, chief investment officer of Birla Sun Life Insurance. “That, along with lower tax rates for the middle and lower classes, will boost consumption.”

The finance minister's decision to keep the service tax rate unchanged and the rejig of income tax slabs provided a huge boost to sentiment, with the Sensex rising over 400 points. It eased later on concerns over inflation, owing to the excise increases on petroleum products.

The stars of today’s trading were automobile and finance companies that could be potential candidates for banking licences.

The bullishness was evident as shares of companies like Tata Motors, Mahindra & Mahindra and Hero Honda rose despite the excise increase. The reason: income tax reliefs, which will lead to higher disposable income for individuals, could more than offset duty increases.

The BSE Auto index rose the most at 4.7 per cent, outperforming the Bombay Stock Exchange Sensitive Index (Sensex) which climbed over 1 per cent. The Sensex closed with a gain of 1.08 per cent at 16,429.55 points, while the NSE’s Nifty index was up 1.29 per cent at 4,922.30 points.

Share prices of finance companies like Reliance Capital, IDFC and diversified firm Aditya Birla Nuvo rose 4 to 8 per cent on the government’s plans to give more private banking licences.

Banking stocks also rose sharply, with State Bank of India rising 2.9 per cent to Rs 1,970. ICICI Bank climbed 1.9 per cent to Rs 868, the highest in more than a month.

The disinvestment target of Rs 40,000 crore for the next financial year was another positive, with potential disinvestment candidates like Engineers India and SAIL rising in today’s trading. But, some players thought the target optimistic. “Such disinvestment targets could be hostage to market conditions. Let’s also not forget that the private sector would probably be raising resources as well, given the significant pick-up in the capital expenditure cycle,” said Prabhat Awasthi, MD, head of equity research (India), Nomura.