Market finds Budget too disappointing

The market was hammered post the Budget, as it turned out to be a big disappointment for India Inc., which did not have second thoughts in giving it a thumbs down. Let us not forget that today's steep fall was amid extremely high volatility.

The 30-shares BSE Sensex tumbled 540.74 points, to settle at 12,938.09, on heavy selling across the board. The barometer Sensex moved in a range of approximately 500 points; 13,298.52 on the higher side and 12,800.91 on the lower. Indian stocks suffered their biggest fall in eight months after 13 June 2006.

In the F&O segment, the Sensex Futures settled at 12,920, down 574.35 points, and at a discount to the spot closing of 12,938.09.

The S&P CNX Nifty was down 148.60 points (3.97%), to 3,745.30.

The total turnover on BSE amounted to Rs 5809.65 crore. On Tuesday, the turnover was Rs 4019 crore.

The market-breadth was weak. There were close to four losers for every single gainer. On the BSE, 1,968 shares declined compared to 594 that advanced. Just 37 scrips remained unchanged.

All except one of the 30-members Sensex pack ended in red.

Satyam Computers was the top loser, down 8.38% to Rs 412.70, on a volume of 15.66 lakh shares.

Gujarat Ambuja Cements (down 7.48% to Rs 116.30), Wipro (down 7.15% to Rs 562) and ACC (down 6.25% to Rs 901) were the other losers.

Maruti Udyog flopped 5.59% to Rs 838, after the dream about the finance minister cutting excise duty on cars turned sour. The Maruti Udyog (MUL) stock had come off the lower level over the past two days on Budget eve on expectations that excise duty on all cars will be brought down from 24% to 16%. In the previous Budget, excise duty was cut to 16% from 24% only on small cars.

Index heavyweight Reliance Industries (RIL) was down 3.65% to Rs 1353.80 on a volume of 23.76 lakh shares.

ITC was the star of the day's trading session, and was the top gainer among the BSE Sensex pack. The scrip rose 3.21% to Rs 170.50, on huge volumes of 48.89 lakh shares, under the reckoning that makers will be able to pass on the 5% hike in excise duty announced on cigarettes to customers.

The worst fears of the market were that cigarettes will be brought under value added tax with 12.5% VAT, spawning concerns that higher tax may lead to a shift in tobacco consumption, to low-end products such as bidis and chewing tobacco. The stock had also surged to a high of Rs 179.90, in intra-day trade.

Finance Minister P Chidambaram today proposed a complete exemption of excise duty on all instant food mixes and biscuits, whose retail price does not exceed Rs 50 a kilo. Besides being the top cigarette maker, ITC also makes biscuits and ready-to-eat food. Relief from excise duty for biscuits and ready-to-eat foods augurs well for the company. The Budget also proposed a cut in duty on food processing machinery to 5%.

SMS Pharmaceuticals, which debuted on BSE at Rs 349.90, settled at Rs 357.85 compared to its IPO price of Rs 380 per share. The counter clocked 34.57 lakh shares on BSE. It also struck a high of Rs 390, and fell to a low of Rs 285.30. The face value per share is Rs 10. The paid-up equity capital of the company is Rs 10 crore.

All the BSE sectoral indices ended with losses, on selling pressure.

IT pivotals, which were down after the government brought employee stock option plans under fringe benefit tax, had recovered. The BSE IT Index slipped 5.85%, and was the biggest loser among BSE's sectoral indices.

Infosys was down 5.25% to Rs 2073, off a session’s low of Rs 2053. Satyam Computer was down 8.38% to Rs 412.70, off a session’s low of Rs 404. Wipro was down 7.15% to Rs 562, off a session’s low of Rs 536.55, while TCS lost 5.94% to Rs 1190. TCS had slipped to a low of Rs 1170.

Among small-mid size IT firms, NIIT Tech plunged 16.26% to Rs 404, Polaris down 13.15% to Rs 172, Geodesic Information lost 5.5% to Rs 255, Aftek Infosys shed 9.89% to Rs 63.35 and KPIT Cummins Infosystems shed 5.85% to Rs 139.90.

The scope of minimum alternate tax has been widened, which will raise tax burden for IT firms. Currently, tax exemption under section 10A is available for units set up in software technology parks (STP). The market was expecting an extension of section 10 A benefit for another 5 - 10 years, which did not materialise. The benefit under this sector expires in 2009.

The outlook for the IT sectors remains strong with strong demand for offshore outsourcing. Indian IT firms are increasingly getting large outsourcing deals. The IT services industry is expected to achieve 31% growth in FY 2007. Of these, exports are expected to grow by more than 33% to $31 billion.

Cement makers were hammered after excise duty was hiked to Rs 350 per MT on cement sold for less than Rs 190. Higher duty will be levied for more expensive varieties of cement.

Gujarat Ambuja Cements (down 7.48%), ACC (down 6.25%), Grasim (down 5.87%), UltraTech Cement Company (down 5.43%) and Shree Cements (down 6.50%) were the major losers in this sector.

Bank shares were under pressure as no there was no budgetary provision to make term deposits attractive. The BSE Bankex lost 4.28%.

Punjab National Bank (down 5.98%), Oriental Bank of Commerce (down 4.54%), Bank of India (down 4.51%), Canara Bank (down 4.21%), UTI Bank (down 6.06%), ICICI Bank (down 5.67%) and HDFC Bank (down 4.02%) declined.

The government announcing measures like restoration of tax deduction on interest income up to Rs 15000 under section 80L and reduction in the lock-in period for savings under section 80C, from the stipulated five years, to lure more term deposits for banks was expected. A hike in FII-ceiling for state-run banks from 20% to 24% was also anticipated. These, however, did not come true.

A sell-off gripped construction shares after the budget for 2007/08 proposed withdrawing tax breaks on construction contracts.

Nagarjuna Construction slumped 20.8% to Rs 153.10, Gammon India plunged 20% to Rs 317.45, IVRCL Infrastructures dropped 15.8% to Rs 289.90 and Hindustan Construction dropped 15.8% to Rs 102.70.

The budget proposed withdrawing the ten-year income tax breaks on infrastructure construction contracts available under section 80 IA, with retrospective effect from April 2000.

The withdrawal of the benefit will raise the tax liability of construction firms which in turn will impact their profit margins, analysts say. Further, their short-term cash-flow may also be affected due to tax payment for previous years as the tax benefit has been withdrawn from April 2000.

State-run Gail (India) managed to buck the weak trend. The scrip was up 2.53% to Rs 283, after reports that it is in talks for a stake in Algerian exploration assets of China's Sinopec.

A deal for a 30% stake in two blocks that Sinopec acquired in 2004 would be the latest sign of cooperation between state-run companies from Asia's fastest-growing oil consumers, both intent on limiting their dependence on imports. A deal will depend on the price asked by Sinopec. However, the deal value is not known.

The blocks 416a and 417 are 75% owned by Sinopec's international upstream subsidiary, while Algeria's state oil firm Sonatrach owns the rest. If the Algerian deal materialises, it will be Gail's first overseas tie-up with Sinopec.

IFCI saw huge volumes of 3.48 crore shares on BSE. The stock was down 10.41% to Rs 27.10.

Hindustan Motors climbed 4.30% to Rs 40.15, as the company expects to earn Rs 295 crore in five tranches, spread over the next 10 quarters, as well as a non-compete fee equal to 4% of sale proceeds from an integrated IT township and auto park it is developing on 314 acres in West Bengal, specifically identified for this purpose.

Drug maker Abbott India gained 2.10% to Rs 553, in an overall weak market, after the company decided to proceed with its plan to buy back shares after getting regulatory approval. The current market price of Rs 558.50, discounts the buy-back price of Rs 650 per share by Rs 91.50 per share.

Credit ratings firm Crisil declined 5% to Rs 2780.75. It announced a surge in net profit for FY-2006 to Rs 13.4 crore (Rs 4.8 crore). Total income for FY-2006 increased to Rs 85 crore (Rs 52 crore).

Iron ore exporter Sesa Goa plunged 8.10% to Rs 1790, after the government imposed export duty of Rs 300 per tonne on iron ore.

Oil refiner Chennai Petroleum Corporation (CPCL) rose 2.4% to Rs 194.90. The stock rose after the government today cut the ad valorem component of excise duty on petrol and diesel from 8% to 6%.

Reactions from a section of the market raise concerns on lack of measures to increase productivity, and a lost opportunity to provide relief to the corporate sector.

"This Budget is disappointing. There are no steps taken to increase productivity in agriculture, electricity and other sectors, which are not performing as is their potential," R Sesashayee, CII President said.

He feels since revenues from peak customs and excise were increasing, this could have been a time to reduce excise duty to 20%, if not 15% overall, in line with the Kelkar Committee Report.

FICCI President Habil Khorakiwala said a wrong signal has gone out to the corporate world, as the government has increased cess and dividend distribution tax.

Increase in dividend distribution tax impacted trading on the bourses, and the market tumbled soon after the announcement. The dividend distribution tax for corporates has been raised to 15% from 12.5%. There has been no change in corporate tax. The 10% surcharge for firms with a taxable income of Rs 1 crore, or less has been removed. The market was expecting abolition of 10% surcharge for all corporates.

On the flip side, there is no increase in the securities transaction tax (STT), on short-term capital gain tax and on long-term capital gains tax on sale of shares. Long-term capital gains tax remains zero. The market also expected an increase in STT. Marketmen also had apprehension of an increase in short-term capital gains tax to 12.5- 15% from 10%.

The finance minister also said that measures would be taken to allow short-selling by institutional investors, which will have to be backed by delivery.

With regard to personal income tax, there is some relief to the taxpayers as exemption limit has gone up to Rs 1,10,000 from Rs 1,00,000.

Markets across the globe were reeling under selling pressure. However, the Chinese market has bounced back smartly, plunging 8.84%, erasing about $140 billion of value in their biggest fall for a decade, amid fears that authorities would crack down on the speculation that had driven shares to record highs on Tuesday (27 December).

The tumble came a day after the main index jumped to an all-time high, cutting its gains for 2007 to 14%. Marketmen attributed the plunge in China to speculation. Chinese Shanghai today composite was up 109.28 (3.94%), to 2881.07. In the morning, markets were extremely weak.

Hong Kong’s Hang Seng Index was down 2.26%, while Japan's Nikkei 225 Index slipped 2.85%.

The market had a bumpy ride to the day of the Budget. Lack of inflows at higher levels, high valuations, inflation and rising interest rates, fears of an earnings slowdown in coming quarters, and profit taking at higher levels returned to haunt the market. From an all-time high of 14,723.88 struck on 9 February 2007, the BSE Sensex had already tumbled 1,245 points, to 13,478.83 by 27 February 2007, a day before the Budget. The defeat of the Congress in Uttarakhand and Punjab also did not help.

US stocks tumbled on Tuesday (27 February 2007), driving the Dow Jones industrial average down; its worst slide since the aftermath of the 9/11 attacks on the World Trade Centre, New York, as a sell-off in China's stock market raised concerns that equity valuations may be too high.

A US Government report showing a bigger-than-expected drop in January's new orders for US-made durable goods, added to investors' concerns about the outlook for economic growth and corporate profits. Those worries added more fuel to the sell-off, and helped contribute to a loss of about $600 billion in market value for the day.

The Dow Jones industrial average slid 416.02 points, or 3.29%, to end at 12,216.24. The Standard & Poor's 500 Index dropped 50.33 points, or 3.47%, to finish at 1,399.04. The Nasdaq Composite Index sank 96.65 points, or 3.86%, to close at 2,407.87.

As per provisional data, FIIs were net sellers to the tune of Rs 503 crore on Tuesday (27 February 2007), the day when the Sensex lost 171 points. FIIs were net sellers to the tune of Rs 688 crore in index-based futures on that day. They were net sellers to the tune of Rs 40 crore in individual stock futures. Nifty March futures settled at 3886.65 on Tuesday, a discount of 7.25 points over the spot Nifty closing of 3,893.90.