Stocks

Not a path-defining Budget for stock market

Lokeshwarri S.K. BL Research Bureau | Updated on March 12, 2018 Published on February 28, 2011

ipo   -  Business Line

The Budget day of 2011 had all the drama that investors associate with this event. Sensex did its usual jig as the Finance Minister took investors through the long-drawn Budget speech, even threatening to dip in to the negative at one point. After a sudden surge taking the Sensex 600 points higher, it finally ended on a sedate note, up 122 points.

There are plenty of positive take-ways in the Budget. But there are no earth-shaking measures that have the capacity to change the course of the stock market. In other words, it is likely to be business as usual from Tuesday.

Market went in to the Budget day on a very subdued note with Sensex down 16 per cent from its November peak. Though price earning multiple of the index is down 21 per cent from its recent peak, there are still concerns that high inflation and rising interest rates will derail corporate profitability. Relatively cheaper valuation of developed markets and better growth prospects there has also been resulting in foreign institutional investors diverting funds out of Indian markets this year.

Positive takeaways

There were plenty to cheer investors in this Budget. That the Budget targeted a lower fiscal deficit at 4.6 per cent of GDP for the next fiscal while maintaining a high growth target between 8.75 and 9.25 per cent was greeted with relief by market participants. Focus on fighting inflation and keeping taxes largely unchanged was also lauded by many. Reduction in surcharge on corporate tax, reduction in fuel, food and fertiliser subsidies were other measures that were well received.

STT and CGT

Securities transaction tax (STT) and capital gains tax was left unchanged this year. But the Direct Tax Code that is to come in to effect from April 1, 2012 deals at length with these taxes. While tax on long-term capital gains tax will continue to be exempt once DTC comes in to effect, tax on short-term capital gains tax is set to reduce to five, 10 and 15 per cent depending on the tax slab applicable for the investor. The DTC also proposes to reduce STT in a calibrated manner.

Primary market is likely to see a lot of action next year as well, since the Budget estimate for PSU divestments next year is maintained at Rs 40,000 crore. Investors, both domestic and foreign, are likely to welcome offers from some of the PSUs such as SAIL, ONGC, IOC, RINL and so on. Pricing of these offers is, however, the key to garnering a good response.

It is also to be noted that since last year's target of Rs 40,000 crore was missed by a big margin, a recurrence is possible in the coming fiscal too. It is, however, imperative that government meets this target in order to keep fiscal deficit under check.

Foreign investors in MF

Another surprise move by the Finance Minister is to allow foreign investors (apart from the SEBI registered FIIs, their sub-accounts and NRIs) from investing in equity schemes of mutual funds. The move appears to be aimed at widening the foreign investor base in to our equity markets and also to ensure that more long-term investors invest in the market.

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Published on February 28, 2011
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