Key equity benchmarks snapped four-day rising trend on Friday, dragged by weakness in IT and auto shares, after the Union Budget failed to impress investors. Indices opened higher and hit fresh intraday high in morning trade. However, absence of big positives in the Union Budget triggered selling in the afternoon trade.
The barometer index, the S&P BSE Sensex, fell 394.67 points or 0.99% to 39,513.39. The index hit a high of 40,032.41 and a low of 39,441.38 in intraday.
The Nifty 50 index fell 135.60 points or 1.14% to 11,811.15. The index hit a high of 11,981.75 and a low of 11,797.90 in intraday.
Selling was broad based. The S&P BSE Mid-Cap index was down 1.39%. The S&P BSE Small-Cap index was down 1.36%.
The market breadth was weak. On the BSE, 784 shares rose and 1688 shares fell. A total of 136 shares were unchanged.
Finance Minister Nirmala Sitharaman in her maiden Budget speech on Friday urged Sebi to consider increasing the minimum public shareholding in listed firms to 35% from 25%. The proposal is potential negative for MNC and companies with high promoter holding. This proposal could also increase the supply of paper in the market, which would suck money out of secondary market.
The big surcharge on the high income group also spoiled sentiment. FM proposed to enhance surcharge on individuals having taxable income from Rs 2 crore to Rs 5 crore and Rs 5 crore and above so that effective tax rates for these two categories will increase by around 3% and 7% respectively. The effective tax rate on the highest tax bracket goes up to 42.7% after the hike.
The yield on 10-year benchmark federal paper tumbled to 6.695% at 17:03 IST compared with 6.751% at close in the previous trading session.
Bond yields declined after FM said that India's sovereign external debt to GDP is among the lowest globally at less than 5%. The Government would start raising a part of its gross borrowing programme in external markets in external currencies. This will also have beneficial impact on demand situation for the government securities in domestic market.
Besides broadening the bond market, this proposal could open up a new source of funding the budget deficit. It could play a critical role in reducing the local government borrowing in rupee and alleviate the pressure on local liquidity, leaving more funds in the local market.
The government also cut FY20 fiscal deficit target to 3.3% from 3.4%.
Further, FM proposed to increase special additional excise duty and road and infrastructure cess each by Re 1 per litre on petrol and diesel.
Among other budget proposals, Rs 100 lakh crore investment is aimed for infrastructure sector over 5 years. The government is setting an enhanced target of Rs 1,05,000 crore for disinvestment and will continue with disinvestment of PSUs in the non-financial space.
Further, FM proposed to merge the NRI-portfolio investment scheme route with the foreign portfolio investment route. FM assured the nation that, except those unwilling to take the connection, all will have electricity connection, by 2022.
India's FDI flows in 2018-19 remained strong compared to global at $54.2 billion, 6% higher than last year. The government will examine options of opening up FDI in media, animation and some other sectors to improve these flows further, FM added. 100% FDI will be permitted for insurance intermediaries.
Sitharaman said it took India over 55 years to reach $1 trillion dollar economy, but the country in just 5 years, added $1 trillion. The Indian economy will grow to become a $3 trillion economy in the current year itself. It is now the sixth largest in the world. Five years ago it was at the 11th position, she added. She further said that $5 trillion economy target was eminently achievable.
Among the sectoral indices on the BSE, the S&P BSE FMCG index (up 0.18%), the S&P BSE Bankex (up 0.14%) and the S&P BSE Telecom index (up 0.03%) outperformed the S&P BSE Sensex. Meanwhile, the S&P BSE Metal index (down 3.85%), the S&P BSE Realty index (down 3.60%) and the S&P BSE Power index (down 3.44%) underperformed the S&P BSE Sensex.
IT stocks took a significant cut in today's session. Wipro (down 4.21%), TCS (down 3.61%), Tech Mahindra (down 2.79%), HCL Technologies (down 2.29%), Hexaware Technologies (down 2.23%), Infosys (down 2.13%), Mphasis (down 1.6%), and MindTree (down 1.17%) declined. Oracle Financial Services Software (up 1.68%) and Persistent Systems (up 1.11%) gained.
Realty stocks tumbled. Oberoi Realty (down 6.44%), Sunteck Realty (down 4.38%), Prestige Estates Projects (down 4.22%), DLF (down 3.7%), Anant Raj (down 2.99%), Godrej Properties (down 2.32%), Indiabulls Real Estate (down 2.11%), The Phoenix Mills (down 1.93%), Mahindra Lifespace Developers (down 1.87%) and Sobha (down 0.37%) declined.
In order to incentivise purchase of affordable house, FM proposed to provide a deduction upto Rs 1.50 lakh for interest paid on loan taken for purchase of residential house having value upto Rs 45 lakh. This shall be in addition to the existing interest deduction of Rs 2 lakh. 100% deduction was provided for the income of affordable housing projects. Holding period for long-term gain on immovable property was reduced from 36 months to 24 months.
In order to align the definition of affordable housing in the Income-tax Act with the GST Acts, it is proposed to increase the limit of carpet area from 30 square meters to 60 square meters in Metropolitan regions and from 60 square meters to 90 square meters in nonmetropolitan regions. FM also proposed to provide the limit on cost of the house at Rs 45 lakh in line with the definition in the GST Acts.
PSU banks stocks reversed intraday gains and ended lower amid weak market sentiment. Allahabad Bank (down 4.25%), Oriental Bank of Commerce (down 1.32%), Syndicate Bank (down 0.97%), Union Bank of India (down 0.83%), Bank of India (down 0.64%) and Punjab National Bank (down 0.3%) declined. State Bank of India (up 0.9%) and Bank of Baroda (up 0.77%) edged higher.
The government has proposed to allocate Rs 70,000 crore for recapitalisation of PSU bank.
Auto stocks witnessed heavy selling. Escorts (down 5.17%), Mahindra & Mahindra (down 4.41%), Hero MotoCorp (down 3.54%), Ashok Leyland (down 3.33%), Tata Motors (down 3.06%), Bajaj Auto (down 2.16%), TVS Motor Company (down 1.94%) and Eicher Motors (down 1.07%) declined.
Maruti Suzuki India was up 2.71% to Rs 6364.75. The Competition Commission of India (CCI) ordered probe on the company after dealer complaint. The probe is on alleged anti-competitive conduct in implementing discount control policy on dealer.
The government has allocated Rs 10,000 crore to the Faster Adoption and Manufacturing of Electric Vehicles (FAME II) scheme on 1 April 2019 for faster adoption of electric vehicles and has announced upfront incentives for electric vehicles.
Phase-II of FAME Scheme, following approval of the Cabinet with an outlay of 10,000 crore for a period of 3 years, has commenced from 1 April 2019. The main objective of the Scheme is to encourage faster adoption of Electric vehicles by way of offering upfront incentive on purchase of Electric vehicles and also by establishing the necessary charging infrastructure for electric vehicles. Only advanced battery and registered e-vehicles will be incentivized under the Scheme with greater emphasis on providing affordable & environment friendly public transportation options for the common man.
Considering India's large consumer base, the government aims to leapfrog and envision India as a global hub of manufacturing of Electric Vehicles. Inclusion of Solar storage batteries and charging infrastructure in the above scheme will boost the government's efforts. The government has already moved GST council to lower the GST rate on electric vehicles from 12% to 5%. Also to make electric vehicle affordable to consumers, the government will provide additional income tax deduction of Rs 1.5 lakh on the interest paid on loans taken to purchase electric vehicles. This amounts to a benefit of around Rs 2.5 lakh over the loan period to the taxpayers who take loans to purchase electric vehicle.
Auto makers have voiced their displeasure about selling electric vehicles in such a short time frame, saying that such a programme would derail growth for the domestic auto industry which is already tackling challenges of BS VI, safety mandates and slowdown.
NBFC stocks ended mixed. IIFL Holdings (down 5.31%), Reliance Capital (down 3.42%), Cholamandalam Investment and Finance Company (down 1.66%), Bajaj Finserv (down 1.27%), Edelweiss Financial Services (down 1.13%), IDFC (down 0.8%), LIC Housing Finance (down 0.42%), Bajaj Finance (down 0.32%) and Manappuram Finance (down 0.18%), edged lower. Muthoot Capital Services (up 0.07%), Muthoot Finance (up 0.09%), Mahindra & Mahindra Financial Services (up 0.54%), Shriram Transport Finance Corporation (up 1.49%) and Indiabulls Housing Finance (up 3.27%) edged higher.
In the Union Budget, the government announced that Non-Banking Financial Companies (NBFCs) are playing an extremely important role in sustaining consumption demand as well as capital formation in small and medium industrial segment. NBFCs that are fundamentally sound should continue to get funding from banks and mutual funds without being unduly risk averse. For purchase of high-rated pooled assets of financially sound NBFCs, amounting to a total of Rupees one lakh crore during the current financial year, the government will provide one time six months' partial credit guarantee to public sector banks for first loss of up to 10%.
The Reserve Bank of India (RBI) announced today that in order to enable the banks to implement this announcement and deal with the NBFCs issue effectively, RBI will provide required liquidity backstop to the banks against their excess G-sec holdings.
In addition to the above, the RBI has also decided to frontload the FALLCR scheduled to increase by 0.5% each in August and December 2019 and permit banks to reckon with immediate effect the increase in FALLCR of 1% of the bank's NDTL, to the extent of incremental outstanding credit to NBFCs and Housing Finance Companies (HFCs) over and above the amount of credit to NBFCs/HFCs outstanding on their books as on date, which will enable the banks to avail additional liquidity of Rs 1,34,000 crore.
Jewellery stocks declined after FM proposed to increase custom duty on gold and other precious metals from 10% to 12.5%.
Thangamayil Jewellery (down 8.76%), PC Jeweller (down 4.95%) and Titan Company (down 1%) edged lower.
GM Breweries was down 6.77% to Rs 459.75. The company's net profit fell 26.68% to Rs 16.27 crore on 7.46% increase in net sales to Rs 118.63 crore in Q1 June 2019 over Q1 June 2018.
Overseas, European markets declined while Asian markets closed on a mixed note on Friday. Market focus is largely attuned to US nonfarm payrolls and unemployment data, expected on Friday. A weaker-than-expected figure could trigger bets that the Fed will cut rates at the end of July.
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