Jaitley gets market thumbs-up; Sensex sees best Budget Day gain in 12 years

Decision to not impose a long-term capital gains tax or raise STT cheered

The stock markets gave a thumbs-up to Union Budget 2017-18, posting their biggest single-day gain in two months. Investors cheered Finance Minister (FM) Arun Jaitley’s decision to not impose a long-term capital gains (LTCG) tax or increase the securities transaction tax (STT). The Street also welcomed minister deciding not to overshoot the fiscal deficit beyond 3.2 per cent of the gross domestic product.
 
In the run-up to the Budget, market players were worried that the government might increase stock market-related taxes. The Street also feared populist measures, such as farm loan waivers, to counter the negative impact of demonetisation, amid elections in key states.
 
“But, there is nothing to be concerned about in the Budget. This can sustain a rally in equities, which would continue to be the most tax-efficient investment option at present in the country,” said Suhas Harinarayanan, head-research, JM Financial Institutional Securities.
 
The BSE Sensex gained 1.76 per cent, or 485.68 points to close at 28,141.64. The National Stock Exchange’s Nifty50 added 1.81 per cent, or 155.1 points to close at 8,716.4. Both benchmark indices posted their biggest gain since November 25 last year and closed at their highest level since October 6.
 
In terms of Budget day performance, both the indices rallied the highest in 12 years.
 
The boost to housing fired up shares of banking, real estate, housing finance and cement companies. Some of the measures announced for the sector include infrastructure status for affordable housing, tax incentives and a promise to build 10 million houses by 2019.
 
“The focus on increasing of expenditure in rural areas and boosting infrastructure, and moves to improve the tax structure for corporates and individuals, are consistent with the government’s intentions to drive consumption-led growth,” said Mihir Doshi, chief executive of Credit Suisse India.
 
Automobile and consumption stocks saw sharp gains on hope that the cut in taxes on personal income, on smaller companies and increased rural spending could spur demand. Shares of Maruti Suzuki and Mahindra & Mahindra gained nearly five per cent each, most among Sensex companies. ITC gained 4.5 per cent as the government kept taxes changed. ICICI Bank and State Bank of India gained around four cent each, on hope that the housing sector push would trigger demand for loans. LIC Housing Finance and real estate names like DLF, Oberoi Realty and HDIL each climbed more than five per cent.
 
Foreign portfolio investor (FPI) buying on Wednesday was tepid, despite clarity on issues such as indirect transfer taxation. The rally was largely driven by huge buying from domestic institutional investors (DIIs). According to the provisional data, FPIs were net buyers to the tune of Rs 93 crore, while DIIs pumped in Rs 1,134 crore.
 
With slash in personal taxes, market players see more retail (small investor) money coming into the financial sector, particularly the stock markets.
 
"We expect the markets to challenge new highs as the focus shifts to pick-up in earnings growth. The governmental push for savings to flow into the formal sector/capital markets will result in DIIs continuing to act as a strong cushion against FPI outflows," said Shilpa Kumar, MD & CEO, ICICI Securities.