Markets turn higher reacting to the budget announcements

Indian markets witnessed a volatile day of trade, though the benchmarks apart from falling in red momentarily for once remained in range, but the benchmarks moved upwards in final hours after remaining directionless for most part of the trade. The much talked about interim budget was more or less on expected lines when the Finance Minister P Chidambaram giving a report card on the economy for the past two terms of the UPA government, went for some populist measures, however he kept the direct taxes unchanged but tweaked some excise duties to bring cheers to the long ailing manufacturing sector.

Earlier, the markets got a cautious but positive start tailing the good global cues, the Asian markets surged as a report showed China’s new credit increased to a record in January. Japanese market that had made a weak start on surge in yen and report that the nation’s economic growth missed estimates, too made a good bounce back and ended higher by over half a percent, further the European markets made a good start and supported the local bourses in retaining their gains.

Back home, the markets enlarging their last session gains ended higher on Monday, a day when UPA government’s second term's last budget was presented. Benchmarks that slumped to red, reacting initially to budget, started gaining strength and ended near the high points of the day, supported once again by the gain in bluchips. Meanwhile, in order to spur demand and boost investment in manufacturing sector the finance minister announced tax cuts for consumer durable industry and a sharp 4 percentage point cut in cars, motorcycles, scooters and telecom handsets. The finance minister also announced a cut of Rs 79,790 crore from the budgeted Plan expenditure of Rs 555,532 crore for the current financial year against the backdrop of a burgeoning fiscal deficit, pegging the fiscal deficit for the current fiscal at 4.6 per cent of gross domestic product (GDP) and at 4.1 per cent for 2014-15. There was some jitters in the market after the interim budget proposed to raise close to Rs 6,000 crore through Securities Transaction Tax (STT) in the next fiscal, however, the government lowered its STT target to Rs 5,497 crore from Rs 6,720 crore for the current fiscal. A majority of the market participants have been demanding removal or lowering of this tax. Also the super-rich tax was extended in 2014-15 as well. In the last Budget (2013-14 fiscal), the government imposed a 10 per cent surcharge for a year on people earning income above Rs 1 crore, covering 42,800 individuals and entities. However, with the budget announcements banking sector came into action, except the PSU banks as the FM announced a lower capital infusion to PSU banks of Rs 11200 crore in FY15. Auto stocks too gathered speed with announcements in Small Cars, Motorcycle, Scooters and Commercial Vehicles - from 12% to 8%, SUVs  from 30% to 24%, Large and Mid-segment Cars - from 27/24% to 24/20%. Though, the capital goods sector lost their steam despite the announcement of excise duty cuts, considering it too little too late. 

The market breadth remained in favor of decliners, as there were 1,235 shares on the gaining side against 1,373 shares on the losing side while 157 shares remain unchanged.

Finally, the BSE Sensex surged by 97.24 points or 0.48%, to settle at 20,464.06, while the CNX Nifty added 24.95 points or 0.41% to settle at 6,073.30.

The BSE Sensex touched a high and a low of 20,492.43 and 20,338.95, respectively. The BSE Mid cap index was down by 0.18%, while the Small cap index gained 0.01%.

The top gainers on the Sensex were Tata Power up by 4.81%, Mahindra & Mahindra up by 2.83%, Dr Reddys Lab up by 2.31%, ICICI Bank up by 2.13% and Hero MotoCorp up by 1.99%, while, Coal India down by 1.59%, Hindalco down by 1.35%, RIL down by 1.22%, Wipro down by 0.56% and BHEL down by 0.54% were the top losers in the index

On the BSE Sectoral front, Bankex up by 1.21%, Power up by 0.96%, Auto up by 0.76%, Healthcare up by 0.67% and IT up by 0.17% were the top gainers, while Realty down by 0.82%, Consumer Durables down by 0.73%, Metal down by 0.71%, Oil & Gas down by 0.49% and PSU down by 0.34% were the only losers in the space.

Meanwhile, Planning Commission Deputy Chairman Montek Singh Ahluwalia, in the backdrop of the last interim budget of the UPA-II, has said that the new government will inherit a better economy with comfortable inflation and stable external sector which would revive growth and investments. The government has already taken a number of steps and this is acknowledged now that the effort to setup a cabinet committee on investments has led to a large number of clearances being taken out of the way.

Ahluwalia said that “There will not be an external instability. The new government will inherit a Current Account Deficit (CAD) which is very comfortable. Foreign exchange reserves are extremely comfortable. I think there is very positive attitude towards India.”

Explaining his points Ahluwalia said that the government took preventive steps leading to the current account deficit (CAD) expectations to fall to 2.5 percent and indications are consistent with the expectation that the next year, i.e. 2014-2015, the economy is well set to put in a better performance both on the growth side and in terms of external pressures. However, he also said that on the fiscal side, one should never think that what they have done is perfect but it will be completely wrong to say that all we did was throw the fiscal prudence out of the way, which is just not the case. 

The CNX Nifty touched a high and low of 6,080.65 and 6,038.30 respectively.

The top gainers of the Nifty were Tata Power up 4.60%, M&M up by 3.27%, Dr Reddys Lab up by 2.59%, ICICI Bank up by 2.38% and Hero MotoCorp up by 1.95%. On the other hand, NMDC down by 5.05%, Coal India down by 1.78%, DLF down by 1.72%, Hindalco down by 1.15% and Reliance Industries down by 1.13% were the top losers.

The European markets were trading in green, France's CAC 40 was up by 0.07%, Germany's DAX was up by 0.12% and United Kingdom's FTSE 100 was up by 1.01%.

The Asian markets concluded Monday's trade in green, with markets in Japan moving higher despite data showing that the nation’s economy grew less-than-expected in the fourth quarter. Japanese markets gained ground despite a stronger yen amid soft growth data. The Cabinet Office stated that Japan's GDP increased by 0.3 percent in the fourth quarter of 2013 on a quarterly basis. Expanding for the fourth straight quarter, the GDP growth missed forecasts for an increase of 0.7 percent following the 0.3 percent gain in the third quarter.

The record new credit in China bolstered confidence in the world’s second-largest economy. China's equity market rose with the benchmark index erasing this year’s losses, after record new credit in January easing concern that the Chinese economy will slow. According to the data released by the People's Bank of China, the bank lending surged to a four-year high in January, setting off alarm bells as Beijing tries to achieve a delicate balance between maintaining growth and managing risk.