The markets yo-yoed more than 600 points in a highly surcharged atmosphere as participants sought to make sense of Pranab Mukherjee's Budget proposals. The Sensex, which soared by as much as 600 points in the aftermath of the FM's speech, erased more than 400 points and ended below the 18k mark at 17,823, up a mere 122 points, and the Nifty ended at 5333, up 29 points. The midcap index ended at 6373, higher by 19 points and the smallcap index shut shop at 7817, up 27 points.
There was a short-covering rally in the afternoon session, triggered by the lower fiscal deficit target set by the government (fiscal deficit target of 4.6% for the year ended March 2012 as against 5.1% for FY11) for the year ended March 2012 and the fact that event risk and accompanying nervousness was behind us. However, the indices went into a tailspin thereafter as the finer print became clearer and the force of profit-booking at higher levels took its toll. The next few trading sessions would reveal if the budget would change the trajectory of the markets, which have been in a bear grip since the last three months, and effectively blunt the impact of the geo-political fires which have been raging on the global arena.
The finance minister began his budget speech by praising the remarkable resilience of the economy and predicted a decline in the average inflation and economic growth rate of 9% next year. He highlighted the fact that preparations for GST rollout were in the final stages and DTC would come into force in April 2012. He also pointed out that exports were up 9.4% in 2010-11, agricultural growth stood at 5.4% and industry was 8.1% in 2010-11. Moreover, we now have a divestment target at Rs 40,000 crore for FY12 and a cut in the state-level fiscal deficit to 3% of gross state GDP by 2014.
Among the major budget proposals, the finance minister promised the introduction of a food security bill to tackle hunger and malnutrition, a comprehensive national policy to control the trafficking of narcotic drugs and a task force to deal with the problem of black money. The FM also assured steps to simplify the tax and tariff procedures and simplify the service tax refunds process. He also announced infra status for the fertiliser sector investments and infra status to cold storage chains, besides a 3% interest subsidy to farmers in FY12.
| Markets on Budget Day in the last decade | |||||
| Date | Sensex | %ch | Nifty | %ch | Finance Minister |
| 2/28/2011 | 17973.79 | 1.54 | 5389.5 | 1.62 | Pranab Mukherjee |
| 2/26/2010 | 16429.55 | 1.08 | 4922.30 | 1.29 | Pranab Mukherjee |
| 7/6/2009 | 14043.40 | -5.83 | 4165.70 | -5.84 | Pranab Mukherjee |
| 2/16/2009 | 9305.45 | -3.42 | 2848.50 | -3.39 | Pranab Mukherjee |
| 2/29/2008 | 17578.72 | -1.38 | 5223.50 | -1.17 | P Chidambaram |
| 2/28/2007 | 12938.09 | -4.01 | 3745.30 | -3.82 | P Chidambaram |
| 2/28/2006 | 10370.24 | 0.86 | 3074.70 | 0.24 | P Chidambaram |
| 2/28/2005 | 6713.86 | 2.19 | 2103.25 | 2.05 | P Chidambaram |
| 7/8/2004 | 4843.84 | -2.26 | 1518.15 | -3.11 | P Chidambaram |
| 2/3/2004 | 5620.98 | -1.31 | 1769.00 | -2.25 | P Chidambaram |
| 2/28/2003 | 3283.66 | 0.19 | 1063.40 | 0.99 | Jaswant Singh |
| 2/28/2002 | 3562.31 | -3.87 | 1142.05 | -3.96 | Yashwant Sinha |
| Source: BS Research Bureau | |||||
Meanwhile, the GDP rose by 8.2% for the December 2010 quarter as against 7.3% in the corresponding period of the previous year, but slowed down from the previous quarter's figures of 8.9%. The mining sector growth stood at 6% vs 5.2% on a y-o-y basis and the farm sector growth shot up to 8.9% vs -1.6% during the period, while the construction sector declined marginally to 8% from 8.3%.
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ITC soared by 7.5% to Rs 167 to lead the gainers list on the BSE in the absence of an excise duty hike on cigarettes and other tobacco products.
Select auto shares ended higher after the government kept the excise duties unchanged. Mahindra and Mahindra raced ahead by 3.1% at Rs 614, albeit off its highs, and Maruti Suzuki gained 3% at Rs 1206.
The shares of infrastructure companies ended higher as the FM announced plans to launch infra bonds worth Rs 30,000 crore to boost the infrastructure sector. IVRCL Infrastructure, IRB Infrastructure, Reliance Industrial Infrastructure, GMR Infrastructure, GVK Power and Infrastructure and Jaypee Infratech ended higher by 1-3% each on the BSE.
The real estate companies were on a roll after the government further liberalized the existing scheme of interest subvention of 1% on housing loans and enhanced the existing housing loan limit for dwelling units under priority sector lending from Rs 20 lakh to Rs 25 lakh. The government also created a mortgage risk guarantee fund under Rajiv Awas Yojana to enhance credit worthiness of economically weaker sections and LIG households. Among individual realty stocks, Anant Raj Industries, HDIL, Sobha Developers, Parsvnath Developers, Orbit Corporation, Godrej Properties, Unitech, Indiabulls Real Estate, DB Realty and DLF traded higher by upto 7% each on the BSE.
Fertiliser stocks had a good session after Pranab Mukherjee announced that the government was mulling nutrient-based subsidy policy for urea and cash subsidy for urea. National Fertilisers, Coromandel Fertilisers, Zuari Industries, FACT, GSFC, SPIC, Chambal Fertilisers and RCF ended higher in the region of 2-7% each.
The public sector undertakings (PSUs) were in limelight after the Finance Minister Pranab Mukherjee said that the government was planning to raise Rs 40,000 crore from disinvestment programme in 2011-12. Among individual PSU stocks, Hindustan Copper, State Trading Corporation (STC) India, HMT, Dredging Corporation and NMDC are trading higher by upto 5% on the BSE.
And the 20% increase in the FY12 health sector outlay at Rs 26760 crore had a positive influence on the pharma sector. Sun Pharma and Dr Reddy's gained around a percent each at Rs 426 and at Rs 1547 respectively.
On the other hand, Reliance Infra weakened by 4.4% at Rs 609 to top the losers list on the BSE. Among auto stocks, Hero Honda slid by 2.8% at Rs 1464, Tata Motors lost 2.1% at Rs 1081 and Bajaj Auto lost 1.2% at Rs 1268.
Cement stocks mostly fell after the finance minister proposed to replace the existing excise duty rate with composite rates having an ad valorem and specific component with some rationalization. Ambuja Cements, India Cements and ACC were down between 2% and 4% each.
And the move to levy MAT on SEZ developers had a negative impact on the stocks in this space; Mundra Port and Thermax crashed around 6% each, while Engineers India slid by about a percent.
The market breadth was positive. Out of 2933 stocks traded on the BSE, there were 1601 advancing stocks as against 1201 declines.