‘Socialist’ Budget leaves traders peeved

An hour into Finance Minister Arun Jaitley’s speech on Monday, murmurs rose among stock traders about the Budget being socialist. It was clearly not intended as a compliment.

By then, Jaitley had roughly outlined his plans to spend nearly ₹88,000 crore for rural India, almost entirely in social spending to win the rural vote. The stock markets sulked, with benchmark indices losing 0.3 per cent by noon and clearly headed further down.

This was the scene at the retail/HNI deal room of a large Mumbai-based brokerage. The scene was quiet, phones were silent and dealers, usually glued to their seats during market hours, lounged near the TV screens.

Jaitley then moved on to announce the allocation for bank recapitalisation at ₹25,000 crore, below the internal deal room consensus of ₹35,000 crore. PSU banks, predictably, began to fall. “It looks like a flop Budget at the moment,” one dealer commented.

A lone client makes a call now asking to buy ITC given the Centre’s huge rural push. “Go long on MCX,” somebody else suggested, when the Budget indicated that market regulator SEBI would be allowed to launch new products in commodity derivatives.

But the worse was yet to come. As the statement on tax proposals began, the benchmarks did a proper nosedive intraday to reach 52-week lows. Big corporates were the first to be hit, followed by big equity investors due to the 10 per cent tax on their dividend income.

At the deal room for institutional clients, activity was muted as well. “The socialist Budget outlay confused many foreign portfolio investors,” a dealer said, “but the prospect of rural spending is creating some hope. I got some large offers for consumer discretionary stocks but Canadian and US funds were mostly selling.” FPIs sold net Indian equity worth ₹2,018 crore on Monday.

Volumes remained thin through the day. After the Budget speech was done, a trader at another brokerage said this had been one of the least volatile Budget days he had seen. “Usually by 2 p.m., the HNI dealers on my desk easily handle volumes of ₹100 crore each. Today, I’ve done just ₹12 crore.”

Suddenly, someone shouts out that ITC has shot into the green, recovering from an over 7 per cent fall intraday.

The fall was expected: the Budget had hiked excise duty by 10-15 per cent on tobacco products. So, why was it going up again? One of the dealers called his analyst who explained that the hike was below expectations. By now, Godfrey Phillips India had moved up as well. “Sab cigarette peeyo ab. You can keep smoking,” said the dealer.

“There was no big-bang announcement this time,” the dealer disappointed with low volumes, added. “The Budget didn’t have many cues to trade on. This is a right-of-centre government giving a left-of-centre Budget. Sitaram Yechury will be happy.”

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