Volatile markets: Sensex swings 800 pts on B-Day

Lack of big announcements disappoints Street, but moves on manufacturing bring some respite

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Volatility ran high on Budget day, with the BSE bellwether, Sensex, moving in an 800-point range. The National Stock Exchange's derivative segment ended the session with record volumes.

A lack of big-bang reforms, the absence of an expected rollback of retrospective taxation and negative cues from the European market deflated sentiment. But the underlying bullish sentiment limited losses, said experts.

The Sensex moved between 25,117 and 25,920 during the day, an 803 points swing before closing at 25,373, down 72 points or 0.28 per cent on previous close. The National Stock Exchange's Nifty closed at 7,567.75.

Ramesh Damani, member of BSE, said the sentiment may have been affected by the lack of a move to scrap retrospective taxation, but the underlying sentiment remained bullish.

"My sense is the honeymoon period of the Narendra Modi government is still on. The market is likely to give a long rope to the government in spite of the lack of big-bang reforms," he said.

"I believe the Budget is positive for the markets. Given the reform orientation covering rural to urban economy, we think this Budget should be given full marks," said Deven Choksey, managing director at KR Choksey Shares & Securities.

Volumes at Rs 4.97 lakh crore were up 61 per cent on the daily average turnover over the last one month. The NSE's derivative segment saw record volumes of Rs 4.41 lakh crore.

CHANGES FOR THE MARKET

Tax arbitrage removed

• Direct investments in bank deposits had been taxed at a higher rate than debt schemes of mutual funds (MF).
  This arbitrage has been removed by tightening tax norms for MF investments.

Tax clarity

• Offshore fund managers can be located in India without the fear of tax implications. The finance minister has removed ambiguity on whether gains from transacting in securities be treated business income or capital gains. All such income would now be capital gains.

ADR, GDR norms eased

• The minister has said the regime governing American depositary receipts and global depository receipts, by which companies can raise capital abroad, has changed. These can now be issued for all securities. The Indian depository receipts’ regime will now be Bharat Depository Receipts.

Uniform KYC

• The government said there would be interoperability of KYC (know your client) norms. This would reduce the need to go through fresh KYC processes.

Single demat account

• The government proposed a single demat account to be used for financial products.

Seven of 12 sectoral indices ended with gains. The index tracking the real estate sector was the biggest gainer, up 4.96 per cent as the government moved to ease funding for it. Consumer durables was the worst-performing one after an imposition of a cess on imports, expected to have an impact on revenues in the short term. An index tracking the sector was down three per cent.

"People went into this Budget with the baggage of the railway Budget and expected it to disappoint as well. But as the speech began and the finance minister started to announce measures for the manufacturing sector, that took up the market. During the second half of the day, markets fell because of declines in global markets caused by a default in payments by a company in Portugal," said Siddharth Bhamre, head, investment advisory and derivatives, Angel Broking.

Reports said Espírito Santo Financial Group, which holds a majority stake in Portugal's Banco Espírito Santo, was hit by a payment issue. The news also affected fund-raising efforts by the Greek government through the issue of bonds.

Foreign portfolio investors were net buyers by Rs 161 crore. Domestic institutions were net buyers by Rs 5 crore.