FM gets a thumbs-up from the Street

Updated: Mar 1 2006, 05:30am hrs
The investor community seems to have given a thumbs-up to the Union Budget, with both the benchmark indices closing at record levels.

A 25% hike in the Securities Transaction Tax (STT) did cause some amount of nervousness on the Street, but by the end of the day, it was clear that the bourses have taken the hike in its stride and there was more to cheer and less to lament.

The 30-share Sensex of the Bombay Stock Exchange (BSE) ended the day above the 10,300-mark for the first time ever at 10,370.84. The index witnessed intra-day volatility of 216.59 points, before closing with a gain of 88.15 points.

The broader 50-share S&P CNX Nifty of the National Stock Exchange (NSE) settled the day at 3,074.70, up 7.25 points.

Market experts opine that the finance minister has reiterated the thrust on infrastructure and the development of the overall economy that will boost the capital markets as well.

Sunil Shah, MD, HDFC Securities, said, The current years Budget has provided key positive triggers for the market. The finance minister maintained the past years tax rate in both corporate and personal income tax rate. Better tax administration and compliance have started yielding positive result in improving gross tax collection to GDP ratio.

From the capital market perspective, the increase in service tax from 10% to 12% and increase in STT by 25% is moderate and in line with market expectations.

In a similar context, Dinesh Thakkar, chairman & MD, Angel Broking Ltd, said, The steps taken by way of increased outlay for planned expenditure would enable the government to move a step forward to achieve 8%+ GDP growth.

On the tax front too, no change in corporate and personal tax rates and the rationalisation of FBT would augur well for savings and capital formation in the country.

ALL'S WELL ON THE BOURSES

Benchmark indices close at new all-time high levels
FM proposes 25% hike in STT; players say don't worry, be happy
Auto, textile, and power stocks surge northwards
In spite of robust sentiments, market breadth remains marginally negative

The mood on the bourses was upbeat as the finance minister handed out sops for various sectors including auto, textiles, infrastructure, oil refiners and food processing. Auto majors like Bajaj Auto, Maruti Udyog and Tata Motors all gained in the range of 1-5% each as the excise duty on small cars was reduced to 16%.

Capital goods stocks also rose in line with the Budgets thrust on infrastructure and power. Sensex constituent Bhel was the best performer of the day among the elite pack, gaining nearly 6% or Rs 112.25 to end at Rs 2,026.20.

Textile stocks like Bombay Dyeing, Century Industries, Raymond and Vardhman Spinning all gained ground as the FM enhanced the allocation for the Technology Upgradation Fund to Rs 535 crore. A further Rs 189 crore will also be provided for the Scheme for Integrated Textiles Park. However, the overall market breadth was still negative as many side counters failed to rise with the Budget.

On BSE, a total of 1,370 stocks lost ground, as against 1,113 gainers. Most of the broader indices like BSE 100, BSE 200 and BSE 500 ended the day in the black even as some of the sectoral indices lost ground. BSE PSU, BSE IT, BSE Teck and BSE Midcap were some of the indices that ended the day in the red.

The FM also provided many sops to the ever-increasing mutual fund (MF) industry by increasing the ceiling on aggregate investment by MFs in overseas instruments from $1 billion to $2 billion with the removal of requirement of 10% reciprocal shareholding. Rajat Jain, CIO, Principal PNB MF said that the relaxation for MFs to invest abroad would expand the universe of the industry.

And, the close-ended equity oriented schemes would be strengthened as they would be treated on par with the open-ended equity oriented schemes by providing exemption from the dividend distribution tax.

On the other hand, Sameer Kamdar, national head (mutual funds), Mata Securities said the Budget has taken up structural issues without addressing the practical issues.

The hike of ceiling on the aggregate investment by the MFs in the overseas instruments is not going to yield any result as the industry has not been able to utilise the present limit of $1 billion fully, he said.