Interim budget to set the tone

Interim general budget for 2009-2010 which the government will unveil during trading hours on Monday, 16 February 2009, will set the tone for the stock market next week. Global markets also hold key for the domestic bourses. A recovery of the world economy and a thaw in the global financial markets could boost domestic stock markets as Indian firms need large sums of money to fund their capital expenditure plan.

Large funding is also required to the infrastructure required to sustained economic growth at around 8% and help reduce poverty, for which foreign capital is crucial. After a tough 2008, global markets have yet to convincingly recover amid doubts about the economic outlook, despite multi-pronged efforts by policy makers worldwide that have included tax cuts and lower interest rates. The occasional signs of hope -- such as an unexpected rebound in sales at US retailers in January 209 have been tempered by many other indicators of just how tough things are getting with the world's main engines of growth mired in recession.

Investors will keep an eye on the outcome of this weekend's G7 meeting of financial leaders, though little in terms of actual policy is expected to emerge. Bank of Japan Governor Masaaki Shirakawa on Friday, 13 February 2009, joined a growing call for G7 finance heads to take steps this weekend to rescue the worsening global economy.

Closer home, any disappointment from the interim general budget on 16 February 2009 may spark a sell-off as the market has witnessed a decent rebound from a recent low on expectations the acting Finance Minister Pranab Mukherjee would offer tax sops and sector-specific stimulus package to revive economic growth.

Realty stocks have surged in the past few days on reports the interim budget may announce tax sops aimed at boosting the housing sector, which has been identified as a potential driver for the economy and job creation during a slowdown. As things stand, taxpayers are allowed to deduct up to Rs 1.5 lakh of interest paid on home loans from their taxable income. This limit could be raised to Rs 2 lakh. This, if it happens, will enable those who have bought a house for self-use to save up to Rs 68,000 in tax. At present, the maximum anyone can save through this deduction is Rs 51,000.

Auto stocks have gained on hopes the government may announce some tax sops to the automobile sector. While an across-the-board 4% cut in excise in December 2008 makes any drastic concessions difficult, excise duty on big cars with engine capacities of 1200 cubic centimeter (cc) or more in petrol is likely to get reduced to 16% from the existing 20%, reports suggest.

Engineering and power sector-related shares have surged on hopes the government would step up spending on infrastructure projects.