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Markets Remain Unmoved

In spite of containing many positives the Budget failed to impress stock markets. In the long run, the removal of long-term capital gains tax on equities should promote long-term investing.

Stock markets had a rather lukewarm response to the Budget this year over previous years. The BSE Sensex and the S&P CNX Nifty closed on Friday with gains of 0.19 per cent and 0.99 per cent, respectively. This lack of movement was also evident during other trading sessions. The Sensex thus ended the week down 0.71 per cent (6.32 points) while the Nifty shed 0.25 per cent (2.75 points). Internationally, the Dow Jones was down 1.58 per cent while the Nasdaq lost 0.85 per cent.

This lack of enthusiasm was also seen among foreign institutional investors (FIIs). Except for the first and last trading sessions, FIIs were net sellers on all days. This resulted in an outflow of Rs 30.4 crore over the week. Mutual funds, on the other hand, bought equities in each trading session till Thursday. Over the week, mutual funds invested Rs 74.44 crore.

While broader markets remained listless there was more activity in sectoral indices. The BSE IT Index closed the week up 1.72 per cent, with all gains registered on the Budget day. The continuation of tax benefits under Section 10 (A) and 10(B) for IT companies--even if ownership changes--was viewed as a welcome move. Infosys ended the week up 1.43 per cent, while Satyam lost 0.79 per cent. Wipro moved up by 2.19 per cent and this was responsible for the slightly better showing of the Nifty as compared to the Sensex.

In spite of gaining significant concessions pharmaceutical stocks ended in the negative territory. Healthcare stocks fell on each trading day, except for Friday. Overall, the BSE Healthcare Index lost 1.03 per cent.

Banking stocks saw mixed movement. PSU bank stocks opened the week on a strong note. The rally could not be sustained and these stocks moved southwards on other trading days. The Budget was very disappointing for PSU banks, as it did not contain any announcement on increasing FII investment limit. As a result, the country's largest bank, SBI, will not be able to raise funds through ADRs and GDRs. The stock lost 8.11 per cent. Private sector banks, however, were major beneficiaries as the Budget has increased the FDI limit from 49 per cent to 74 per cent. While ICICI Bank remained unchanged over the week, HDFC Bank's scrip moved up by 0.27 per cent.

For FMCG companies, the Budget proposals were product-specific. While the excise duty on biscuits was reduced from 16 per cent to 8 per cent, edible oils were slapped with an 8 per cent excise duty. The BSE FMCG Index fell lost 0.25 per cent. FMCG major Hindustan Lever lost 1.22 per cent across the week. ITC, however, gained 1.52 per cent and this limited the loss of the BSE FMCG index.

On the whole, the Budget contained many positives that the market was looking for. The removal of the dividend tax and its replacement with a dividend distribution tax was agreed to. Also, the Budget did away with long-term capital gains tax on equities, something that market observers had not anticipated. The reduction of surcharge on corporate tax to 2.5 per cent was also a plus

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Outlook
This Budget contained something for everyone. However, the uncertainty in the Gulf region held back markets in the past month. And this spilled over to the Budget day as well. FIIs were far from impressed as they felt that no measures had been taken to reduce the fiscal deficit. Therefore, in the absence of significant FII investment markets are expected to be range-bound till war tensions ease completely.