Union Budget: Focus on inclusive growth

Big thumbs up from the market for the Budget for FY11, with the Sensex up 1.8% intraday, as much because the rollback of stimulus was softer than expected even as the fiscal deficit expanded in a controlled manner and personal income taxes saw some relief.

Corporate and capital market taxes were also more benign. The budget was mindful of  continuing to support the ongoing growth recovery even as the Finance Minister, Pranab Mukherjee, talked about targeting 10% growth going ahead.

According to Gaurav Dua, head of research for Sharekhan, the budget ‘addressed the key issues of containing fiscal slippage and outlined a clear roadmap for the next three years. The net government borrowing program for 2010-11 is also well under control and allays fears of crowding out of bank credit for private sector’.

The thrust was on supporting infrastructure growth (46% of total Plan allocation) with special emphasis on rural infrastructure while roads, power and urban housing and infrastructure, education and health receiving government largesse. This was a huge positive for infrastructure finance companies. The markets acknowledged the developments and IDFC moved up 6.6%. The boost to the power sector has sent NTPC up 1.6%

Farm loan repayment schedules under debt waiver and relief scheme have been extended by 6 months to June 2010 and interest subvention for timely repayment of short term crop loans  increased to 2% with effective interest rate for these loans it 5%. This relief for rural economy is expected to boost spend which has sent two-wheeler stocks up 3.7 to 4.2%.

Disinvestment target is pegged at Rs 25,000 crore for FY11 continuing on the process renewed this fiscal. This provided the required impetus for the PSU index that moved up 1.6% in late noon deals.

PSU banks will see supportive capital infusion of about Rs 16,500 crore while the government mulls on new banking licenses for qualifying NBFC’s and private players. PSU banks were big bank stock gainers and are up on average between 3-5% so far. Ajay Srinivasan, CEO, financial services, Aditya  birla group, came through swiftly acknowledging keenness to apply for a license.

Auto stocks have gained after the announcement that the excise duty hikes of 2% will be limited to large cars, SUVs and MUVs. Given that there is more money in the middle class pocket with the relief on the personal income tax front, the auto index is up 4.15%.

The extension of the 1% interest subvention for affordable housing and the thrust on slum redevelopment is a boost for affordable housing developers.

However, the hike in duties on tobacco products did not go down well with the tobacco major ITC Ltd that shed over 6%.

The measured approach to reducing the fiscal deficit over the next couple of years to about 4.1% of GDP from 5.5% currently is a key positive on the macro-economic front, especially given the profligacy in several countries globally.

All of this will leave the market plenty to cheer about.