Sensex loses 6% as Street gives speech its thumbs down

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: The lack of strong positive cues from the Budget and renewed weakness in Asian markets pulled down the benchmark 30-share Sensex of the Bombay Stock Exchange (BSE) by 5.83% on Monday.

But markets could turn around as Standard & Poor’s said the proposed Budget deficit of 6.8% for 2009-10 — despite being the widest in 16 years — is “within the boundary of our expectation”.

Despite the good news of the abolition of the fringe-benefit tax, markets slipped as the Budget lacked any substantial direction finders. While the BSE Sensex ended at 14,043.40 points, the broader S&P CNX Nifty of the National Stock Exchange was down by 258.55 points, or 5.84%, to close the day at 4,165.70 points.

The rupee also slipped by 1.3%, the steepest in almost six weeks, to 48.54 against the dollar. As the finance minister laid out his borrowing plans, the yield on the most-traded 6.07% note due May 2014 surged 22 basis points — the most since March 17 — to 6.45%.

Motilal Oswal, chairman & managing director of Motilal Oswal Financial services, said, “Markets had huge expectation from the Budget, even after going up by over 20% after the elections results were declared in May.”

The expectations were around sweeping reforms in the insurance sector, abolishment of the Securities Transaction Tax, large tax saving incentives and, more importantly, PSU disinvestment. With none of these forthcoming, dealers started dumping banking stocks.

“Banking sector disinvestment was most expected and with the minister literally ruling this out, the market reacted as many had built positions by taking this into consideration,” said a senior executive with an overseas investor.

In a note, Fitch Ratings said the Budget did not “alleviate” pressure on the ratings. Both S&P and Fitch rate India’s debt at BBB, the lowest investment grade.

Overall, the breadth of the market remained negative as out of 2,633 stocks traded on the BSE, 2,020 stocks declined, 551 stocks advanced while 62 stocks remained unchanged.