Even as Thursday?s annual Economic Survey exhorted Indian capital markets to shun ?herd behaviour? and ?panic selling?, the markets did just that on Friday as finance minister Palaniappan Chidambaram presented Budget 2008-09. In a knee-jerk reaction to the government?s decision to waive off Rs 60,000 crore in farmer debt, stocks of most public sector banks headed south. A later clarification that the government would reimburse the lender banks, however, helped recoup some of the early losses.
The benchmark Sensex of the Bombay Stock Exchange fluctuated in a range of 521.34 points, finally settling at 17,578.72 points, posting a loss of 245.76 points, or 1.38%, while the broader S&P CNX Nifty of the National Stock Exchange closed the day at 5,223.50 points, losing 61.6 points, or 1.17%.
Though the Union Budget was populist, it was not that popular with stock market investors. As the finance minister announced an increase in short-term capital gains tax (STCG) from 10% to15%, dampening investor sentiment, this was clearly visible as the markets started losing fresh ground almost immediately. Corporate tax, which was left untouched, left several market players dejected, dealers said.
Nirmal Jain, chairman & managing director of India Infoline Ltd, said, ?Stock markets are a bit disappointed at the increase in STCG and the failure to remove the surcharge on corporate tax. On the positive side, the cut in excise duty rates and the lower incidence of personal tax?translating to higher disposable income?would give the required impetus to consumer demand. On the negative side, failure to lower the corporate tax or dividend tax is a missed opportunity.?
The loan waiver may prove a big positive for public sector banks as, possibly, farm loan NPAs are replaced by government debt, which has the highest security. But it will affect the government?s finances adversely, Jain added. ?The Budget is a mix of populist measures and efforts to sustain growth,? he said.
Among sectoral indices, the banking, FMCG, auto and healthcare indices ended the day on a positive note on the back of positive budgetary announcements, while other sectors lost in a range of 0.18% to 2%. The Budget is expected to give a fillip to sectors such as education, fertilisers, pharmaceuticals, textiles and defence up to a certain extent, dealers said.
Meanwhile, foreign institutional investors continued to withdraw money from Indian markets, and on Friday they were net sellers at Rs 334.87 crore, while domestic institutional investors continued to take a contrarian view and were net buyers at Rs 742.79 crore in equities.
