One view by experts, on watching the group matches in the World Cup was that rehearsals are better than the main bout. A day before the announcement of the Budget, the Sensex vaulted by almost 473 points to again close above 29000 levels. Sentiment was buoyed largely on hopes and expectations that this would be another make or break Budget. In fact, of the last eight sessions in the fortnight ahead of the Budget, the Sensex closed above the 29000 level six times – clearly an indication of the high levels of expectation. The Economic Survey released on 27 February only fuelled expectations more.
Even on the day of the Budget there was a lot of volatility. The market opened on an optimistic note, moving up sharply to 29470 ahead of the actual presentation. L&T, BHEL, and IDFC were all up. As were property shares like DLF and Sobha, and housing finance companies like GIC, Gruh, HDFC and Lie which crossed the ?500 mark. Capital goods and property were the two major sectors expecting more sops to kick start housing.
Volatility, a regular suspect at the Budget session, did make its presence felt and during the session the major indices moved up and down with both the Sensex and Nifty moving into negative territories having wiped out all its gains. Around mid-session, soon after the Budget was laid before Parliament, both indices slipped deep into the red, a trend which continued till well after the mid-session.
There was nothing negative as such in the Budget for the markets to have behaved the way it did, post Budget. If anything, there were a lot of positives which will eventually see the markets taking a relook. This Budget did what it was expected. It set a clear road map of the path the finance ministry would follow over the next four years, fm Arun Jaitley indicated that the new government was not seeking to centralise decisions and spending. If anything it was trying to make states as partners of growth. Nearly 42 per cent of the taxes would devolve to the states; they could prioritise spending the way they thought best. The overall devolution to states would be close to 62 per cent.
The Budget also laid out a roadmap for corporate tax, with Jaitley mentioning that corporate tax would be cut down from 30 per cent to 25 per cent over the next four years. Some of the immediate positives like
abolition of wealth tax, proposals to boost public spending and set up a fiscal consolidation road map aimed at bringing down the fiscal Budget to 3 per cent in FY18.
One of the big expectations was giving a fillip to investment in infrastructure. This was ably handled by the finance minister. He said the government would pump in around ?70,000 crore in a bid to catalyse investments by the private sector. In addition: setting up an infrastructure fund, tax-free infra bonds, and revisiting the ppp model with a view to make the government an equal partner in sharing risks. Corporatisation of five major ports currently being operated as Trusts was also a major move. The biggest one of course was the government’s indication to set up five ultra mega power projects on plug and play model. This meant that the government would ensure all permissions in place and offer the projects to the private sector on a platter – through a transparent bidding process. However, the capital goods index dipped by 233 points on fears that these initiatives would take time to roll out.
Banks stocks were at the receiving end following the FM’s announcement to set up an autonomous bank bureau, an interim step to form an holding and investment company for psu banks. SBI slipped from 305- plus to around 295. Bank of Baroda, PNB and Union Bank also dipped in sympathy. Fears of a carbon tax on petroleum products saw the prices of refineries also moving southwards.
It is apparent that the market was a little disappointed that there were no big bang reforms which it could comprehend. And showed its disappointment in the only way it could: sell. Hopefully a better reading of the Budget over the weekend and the post-Budget fm interview will make it realise its folly. A growth-oriented Budget may not have immediate gains for the market, but the economy will definitely benefit from some of the radical steps announced. This Budget does try to address some of the operational concerns of industry.
♦ DAKSESH PARIKH email@example.com