Steady, sans drama

Written by Sucheta Dalal | Updated: Mar 1 2006, 05:30am hrs
It did not cause the excitement of his previous dream budgets but the 181-point rally in the Sensex (at 3.05 p.m.) shows that the capital market has given a strong thumbs up to the Budget proposals.

Interesting, instead of greeting the Budget proposals with the usual irrational spike, the rise has been slow and steady, building up slowly from the time the minister began to read the Part B of the Budget speech. This is perfectly in line with the absence of dramatics in the budget speech and in line with the strong growth impetus inherent in several announcements.

On the macro economic front, the serious attempt at a fiscal correction as well as the absence of any significant piece of bad news (in form of new and esoteric taxes) coupled with the focus on infrastructure development, education, tourism and rationalisation of duties across a wide swathe of industries has been greeted positively.

It is also obvious that the finance minister has steered clear of controversy by refusing to even allude to controversial issues such as Foreign Direct Investment (especially in retail) and refused to mention the P (privatisation) or D (disinvestment) words. There is also disappointment in the fact that the petroleum sector, another potentially controversial area, has been given a wide berth.

The Sixth Pay Commission, announced by the Prime Minister, also finds no mention. Over all, the market approves of the finance minister skirting controversy - public wrangling over Budget proposals always causes avoidable volatility in stock prices. As regards issues specific to the capital market, the finance minister has correctly raised Securities Transaction Tax (STT) by 25%.

With the Sensex trading above 10,200, this move has predictably not even raised an eyebrow. In a ferocious bull market, traders are willing to cough up more tax.

A significant direction has been given to the development of the corporate bond market through the stock exchange traded mechanism; at the same time, the RBI-controlled Negotiated Dealing System (NDS) has been prised open to allow access to mutual funds. Other pluses are the increased limit on FII investment in government securities from $1.75 billion to $2 billion, and from $0.5 billion to $1.5 billion in corporate debt. Mutual funds have been allowed to double their overseas instruments. The impact of these positive measures will unfold slowly.