Indian benchmark indices opened on a cautious note ahead of the Union Budget 2016-17 due later today, waiting to watch the proposals which would set the course of the markets in the coming days.
BSE Sensex was trading up 0.12% at 27,689.77 points, and NSE Nifty was up 0.16% at 8,575 points, with most sectoral indices recording mild gains.
The indices fell yesterday after rising by as much as 3.5% in the previous week on profit booking and concerns that the rally could not be sustained ahead of the Budget, as is seen in the past.
Infrastructure and social sector stocks will be most watched, as the government is expected to boost spending on these to ease the pain of demonetisation. A possible boost to the rural income and job creation may push up the automobile stocks, particularly that of two-wheeler makers.
Concerns that Finance Minister Arun Jaitley would be more populist in this Budget may keep the indices range-bound, as the government largesse on populist measures may stretch its fiscal deficit.
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The government has a tough task of walking the tightrope between maintaining fiscal discipline by sticking to the targeted limit and kick-starting the consumption-investment cycle. Short of a miracle, the government will find it difficult to achieve the target of limiting the fiscal deficit to 3% of GDP in the next financial year 2017-18, as laid out in the FRBM Act, CRISIL Research said in a note.
On the other hand, keeping too tight a fiscal deficit target may tie the government’s hands preventing it from providing the much-needed spur to the economy. The market expects Jaitley to relax the fiscal deficit target a little, but too much slippage may turn negative for the markets.
Most observers feel this year’s Budget to be pro-poor, with a focus on boosting farm incomes and jobs. However, any moves to simplify the corporate taxes, or relax income tax limits will be seen as positive.
On Nifty, Grasim, Bank of Baroda, Bharti Infratel, SBI and Adani Ports were the top gainers, with each up between 1.3% and 2.5%. Idea Cellular, on the other hand, was the top loser, dropping 4.54% to Rs 105.1, paring the recent gains on profit booking. Idea Cellular shares have surged about 50% in eight days to yesterday on the news of its discussions with Vodafone for a possible merger.
Other top losers were Infosys, HCL Tech, Tech Mahindra and TCS. All these IT stocks extended yesterday’s losses after the news of the US President Donald Trump moving to make it more expensive to hire immigrants on H1B visa, which is widely used by Indian IT firms to send its employees to work closer to the clients in the US.