Immense intraday volatility was witnessed with key benchmark indices provisionally closing in the red after Finance Minster Arun Jaitley made number of announcements in Union Budget 2014-15 such as a proposal to increase in foreign direct investment in insurance and defence manufacturing, measures to boost long term financing for infrastructure by banks and provided clarity on taxation with respect to foreign portfolio investors. The barometer index, the S&P BSE Sensex, was provisionally down 157.01 points or 0.62%, off close to 630 points from the day's high and up about 170 points from the day's low. At the day's low of 25,117, the Sensex fell 327.81 points or 1.28%, while, at the day's high of 25,920.46 the Sensex gained 475.65 points or 1.86%. The market breadth indicating the overall health of the market was positive.
Bank stocks declined after the finance minister said in the Union Budget 2014-15 that the capital of banks will be raised by increasing the shareholding of the people in a phased manner through sale of shares largely through retail to common citizens of the country. Construction stocks rose.
The Budget proposed that income of foreign portfolio investors from transaction in securities will henceforth be treated as capital gains and not business income. There is no long term capital gains tax on sale of shares if the shares are held for a period of more than a year. Short term capital gains tax on sale of shares is 15%. Short term capital gains tax is payable when the shares are sold within a year of buying.
The Finance Minster said the government is aiming sustained growth of 7-8% or above within the next 3-4 years along with macro-economic stabilization that includes lower levels of inflation, lesser fiscal deficit and a manageable current account deficit. The Finance Minister has kept a target of limiting fiscal deficit to 4.1% for the current fiscal and decided to reduce it further to 3.6% in 2015-16 and 3% in 2016-17. The Finance Minister said that the Centre is committed to implement GST at the earliest and the issues raised by state governments will be resolved soon.
Jaitley said the government will not ordinarily bring about any change in taxation retrospectively which creates a fresh liability for tax payers. He said that the government will constitute an Expenditure Management Commission to look into every aspect of expenditure reform. The government also intends to overhaul the subsidy regime while providing full protection to the marginalized, Jaitley said.
With a revised Direct Tax Code already placed in public domain in March 2014, the government will consider the comments received from stakeholders on the revised Code, Jaitley said. He said that the government will review the DTC in its present shape and take a view in the whole matter.
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Jaitley said that the government will promote foreign direct investment (FDI) selectively in sectors. The FDI cap in both the insurance sector and defence manufacturing is proposed to be increased to 49% from the current level of 26%, with full Indian management and control, through the FIPB route. FDI is also being encouraged in the development of smart cities, Jaitley said.
The Budget has forecast 26.9% growth in Plan expenditure at Rs 5.75 lakh crore in 2014-15.
As per provisional figures, the S&P BSE Sensex was down 157.01 points or 0.62% to 25,287.80. The index jumped 475.65 points at the day's high of 25,920.46 in mid-afternoon trade, its highest level since 8 July 2014. The index shed 327.81 points at the day's low of 25,117 in early afternoon trade, its lowest level since 27 June 2014.
The CNX Nifty was down 44.75 points or 0.59% at 7,540.25, as per provisional figures. The index hit a high of 7,731.05 in intraday trade, its highest level since 8 July 2014. The index hit a low of 7,479.05 in intraday trade, its lowest level since 23 June 2014.
The total turnover on BSE amounted to Rs 5080.15 crore, higher than Rs 3840.79 crore on Wednesday, 9 July 2014.
The market breadth indicating the overall health of the market was positive. On BSE, 1,603 shares gained and 1,270 shares fell. A total of 88 shares were unchanged.
The BSE Mid-Cap index was up 40.59 points or 0.45% to 9.117.95. The BSE Small-Cap index was up 61.23 points or 0.62% to 10,005.38. Both these indices underperformed the Sensex.
Hero MotoCorp (down 4.2%), TCS (down 2.01%) and Mahindra & Mahindra (M&M) (down 1.71%) edged lower from the Sensex pack.
Construction stocks rose. NCC (up 5.33%), L&T (up 0.15%), IVRCL (up 1.6%), Gammon India (up 3.42%), and IRB Infrastructure & Developers (up 4.77%) rose. Hindustan Construction Company fell 0.59%.
The Budget has provided Rs 14389 crore for rural road development projects in 2014-15 under the Pradhan Mantri Gram Sadak Yojana.
Bank stocks edged lower. Among PSU banks, State Bank of India (SBI) (down 2%), Canara Bank (down 0.41%), Union Bank of India (down 2.92%), Bank of India (down 1.14%), Bank of Baroda (down 1.56%) and Punjab National Bank (down 1.19%) declined. Expressing concerns over the rising non performing assets (NPA) of Public Sector Banks (PSBs) the Union Finance Minister announced setting-up of six new Debt Recovery Tribunals at Chandigarh, Bangaluru, Ernakulum, Dehradun, Silliguri and Hyderabad.
He also said that there is a requirement to infuse Rs 2.4 lakh crore as equity by 2018 in the public sector banks. To meet this huge capital requirement, additional resources have to be raised. By selling the shares through retail, the citizens will get direct shareholdings in these banks even as the government will continue to have majority shareholding. Jaitley said that government will also examine the proposal to give autonomy to the banks while making them accountable.
Among private sector banks, ICICI Bank (down 1.8%), IndusInd Bank (down 1.36%), and Axis Bank down 1.2%), declined. HDFC Bank fell 1.8%. Kotak Mahindra Bank rose 0.16%.
The Finance Minister said that banks will be permitted to raise long term funds for lending to infrastructure sector with minimum regulatory pre-emption such as CRR, SLR and Priority Sector Lending. On the assets side, banks will be encouraged to extend long term loans to infrastructure sector with flexible structuring to absorb potential adverse contingencies, sometimes known as the 5/25 structure.
The Finance Minister said that after making suitable changes to current framework, a structure will be put in place for continuous authorization of universal banks in the private sector in the current financial year. He said RBI will create a framework for licensing small banks and other differentiated banks. Jaitley said differentiated banks serving niche interests, local area banks and payment banks etc. are contemplated to meet credit and remittance needs of small businesses, unorganized sector, low income households, farmers and migrant workforce among others.
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