Heavy volumes accompany sharp post-budget market slide

Lack of any big bang economic reforms in the Union Budget 2009-2010 resulted in sell-off on the bourses that was accompanied by heavy volumes. The BSE 30-share Sensex tanked 869.65 points or 5.83%. The Sensex fell below the psychological 14,000 mark in late trade but it soon regained that level. Weak global stocks also weighed on investor sentiment. Banking, capital goods, power metal and realty stocks led the decline.

As per provisional data released by the stock exchanges, foreign funds today, 6 July 2009, dumped shares worth a net Rs 1483.03 crore. On the other hand, domestic funds bought stocks worth a net Rs 815.71 crore.

Turnover on BSE's cash segment surged to Rs 7,314 crore from Rs 5,578.05 crore on Friday, 3 July 2009. Turnover on NSE's derivatives segment soared to Rs 96656.53 crore from Rs 54841.47 crore on 3 July 2009

Investors were disappointed after the Union Budget 2009-2010 did not contain any major reforms such as a roadmap to increase foreign direct investment in insurance sector and decontrol fuel prices. Lack of financial sector reforms and a clear roadmap on divestment were other sources of disappointment. The government set an very small target of Rs 1120 crore from divestment for the financial year ending March 2010. A surge in fiscal deficit target added to the market's woes. Finance Minister (FM) Pranab Mukherjee set a sharply higher fiscal deficit target to 6.8% for the financial year ending March 2010 after he increased spending on roads, power and aid to the poor.

Volatility on the stock market was immense. The market surged in choppy trade ahead of the Union Budget in early deals. The Sensex crossed the psychological 15,000 mark in early trade. The market extended gains gains after the Finance Minister Pranab Mukherjee said there is need to return to 9% growth at the earliest. A sell-off gripped the market later after the the minster set higher fiscal deficit target. The market cut losses after a sharp intraday fall in early afternoon trade. After a bout of volatility, the market slumped in mid-afternoon trade.

The market was expecting some announcement on decontrol on fuel prices but the FM only said that a panel will be set up to look into the pricing of petrol and diesel. The market was also surprised by the FM keeping a mum on Foreign Direct Investment (FDI) policy at a time when expectations were running high that the government will announce a roadmap for hike in foreign direct investment in insurance sector to 49% from 24%

The projected FY 2010 fiscal deficit is much higher than the 5.5% deficit forecast by Mukherjee in an interim budget in February 2009, and also higher than the 6.2% deficit recorded by the government in the previous year ended 31 March 2009.

Commenting on the stock market's negative reaction to the Union Budget, Mukherjee said the market may have expected too much from the country's annual financial document. In an interview to Lok Sabha TV after the presentation of the budget, the Finance Minister said the budget was not the only instrument to address the economy's issues.

The finance minister has forecast an increase in plan expenditure by 34% and non-plan expenditure by 37%. The total projected budgetary spending in 2009-10 stands at Rs 10.23 lakh crore. The government has proposed an increase in the allocation for government welfare schemes by 45%. Expenditure on Bharat Nirman has been hiked by 45%. The government has allocated Rs 3,91,000 crore under the National Rural Employment Guarantee Scheme this year. The allocation for rural roads scheme has been raised by 59% in 2009-10.

The 10% surcharge on personal income tax has been scrapped. The FM has scrapped the Fringe Benefit Tax and also suggested removal of the Commodities Transaction Tax (CTT). The Minimum Alternate Tax (MAT) has been hiked to 15% of book profit from 10% of boom profit. The FM has kept the corporate tax rate unchanged. Mukherjee said the government will pursue structural changes in direct and indirect taxes. He said states have agreed on basic structure of goods and services tax which will be introduced from 1 April 2010.

FM has increased personal income tax exemption by Rs 15,000 for senior citizens and by Rs 10000 for others.

The Finance Minister (FM) said the plan is to a return to a path of 9% at the earliest and to deepen and broaden the agenda for inclusive development. The FM forecast a 6.7% GDP growth for FY 2010.

The government has extended agriculture debt waiver by 6 months and provided additional Rs 1000 crore over interim budget for irrigation. Budget will provide additional subvention of 1% to farmers who pay short term farm loans on schedule. He said government will develop long distance gas pipelines to develop national grid and LNG infrastructure in the country.

The finance minister has allocated Rs 4000 crore to incentivise lending to small firms. Budget extended interest subvention to exporters in seven sectors till March 2010 and will provide relief to exporters hit by global financial crisis. FM has extended agriculture debt waiver by 6 months and provided additional Rs 1000 crore over interim budget for irrigation.

The budget has allocated Rs 5000 crore for Mumbai flood project. The government will raise allocation for urban poor schemes to Rs 3,973 crore in 2009-10.

The finance minister proposed to raise the threshold for non-promoter holding in all listed companies. The FM said the government will encourage people participation in divestment of state owned firms. He said a plan will be set up to review domestic fuel prices. He said the government plans to return to fiscal reform targets at the earliest and that institutional reforms are required to control fiscal deficit. The government plans to move towards nutrient based subsidy regime for fertilizers and to offer direct subsidy to farmers.

The FM said significant flow of foreign capital is important and that there are signs of revival in domestic industry and foreign investors have returned. He said the government will continue to provide fiscal stimulus and to provide more flexibility to Infrastructure Finance Company (IIFCL). IIFCL will facilitate 'take out' financing for infrastructure projects. He said allocation for national highways development will rise 23% and has asked states to remove bottlenecks on infrastructure projects.

The government has restored 8% excise duty on manmade fibres. It has meanwhile, scrapped the excise duty on branded jewellery. With regards to the customs duty, the duty on LCD panels has been cut to 5% from 10%. The government has imposed a 5% customs duty on set top boxes. The customs duty on wind power equipment has been cut to 5% from 7.5%.

The finance minister said fiscal deficit target will be closer to 3% of GDP by FY 2011-12 assuming a global economic recovery. He has assumed GDP growth of 8% in FY 2011 and 9% in FY 2012.

Reacting to the Budget, Prime Minister Dr. Manmohan Singh, said the Finance Minister has done a commendable job in reconciling the short term requirements of our economy, to provide a stimulus to the growth process and simultaneously to ensure that we recapture the rhythm of the growth process despite the recessionary tendencies in the world economy.

Meanwhile, credit rating agency Standard & Poor's (S&P) said India's proposed budget deficit of 6.8% of gross domestic product is within the boundary of the rating agency' expectation. The prospect of a wider fiscal gap had already prompted S&P to change the outlook on India to negative after the government said in its February interim budget that additional stimulus of 0.5% to 1% of GDP may be required, Takahira Ogawa, a Singapore-based director of sovereign ratings at S&P said.

Weak global stocks added to selling pressure on the domestic bourses today. European shares fell today to a seven-week low on worries that economic recovery may still be some way off, with energy companies and banks leading the fallers, and ahead of the start of second-quarter earnings. The key benchmark indices in France, Germany and UK were down by between 1.22% to 1.58%.

Most of Asian stocks fell today. Key benchmark indices in Hong Kong, Singapore, Japan and Taiwan were down by between 0.23% to 1.38%. Key benchmark indices in China and South Korea were up by between 0.63% to 1.18%.

Trading in US futures indicated Dow could fall 74 points at the opening bell on Monday, 6 July 2009. US markets were closed on Friday, 3 July 2009 on account of Independence Day.

The BSE 30-share Sensex tanked 869.65 points or 5.83% to 14,043.40. The Sensex rose 184.82 points at the day's high of 15,097.87 in mid-morning trade. At the day's low of 13,959.44, Sensex fell 953.61 points in late trade.

The S&P CNX Nifty was down 258.55 points or 5.84% to 4,165.70. Nifty July 2009 futures were at 4,154, at a discount of 11.70 points as compared to the spot closing of 4165.70.

The BSE Sensex is up 4,396.09 points or 45.56% in calendar year 2009 as on 6 July 2009. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex has risen 5,883 points or 72.09% as on 6 July 2009.

Coming back to today's trade, the market breadth, indicating the overall health of the market, was weak in contrast to a strong breadth in early trade. On BSE, 543 shares rose as compared with 2,009 that fell. 62 shares remained unchanged.

From the 30 shares Sensex pack, 28 fell and 2 rose.

The BSE Mid-Cap index fell 5.17% and the BSE Small-Cap index fell 4.8%. Both the indices outperformed the Sensex.

The BSE Bankex (down 8.17%), the BSE Realty index (down 7.28%), the BSE Capital Goods index (down 7.02%), the BSE Metal index (down 6.57%), the BSE Power index (down 6.36%), underperformed the Sensex.

The BSE FMCG index (up 0.97%), the BSE Consumer Durables index (down 1.81%), the BSE Healthcare index (down 1.88%), the BSE IT index (down 2.74%), the BSE Auto index (down 3.31%), the BSE TECk index (down 3.92%), the BSE PSU index (down 5.51%), the BSE Oil & Gas index (down 5.81%), outperformed the Sensex

India's largest private sector firm by market capitalisation Reliance Industries (RIL) fell 6.54% to Rs 1,893.30 after Finance Minister Pranab Mukherjee increased the rate of minimum alternate tax to 15% from 10%.

RIL pays tax under MAT. RIL's total tax liability stood at Rs 3028 crore in the year ended March 2009 (FY 2009) which included deferred taxes of Rs 900 crore and fringe benefit tax of Rs 54 crore. While higher MAT may result in increase in tax outgo, the scrapping of the fringe benefit tax (FBT) may help mitigate the impact to some extent. The government has scrapped FBT in the Union Budget 2009-2010.

Meanwhile, the government has restored tax holiday to natural gas producers which will benefit RIL. In the last financial year's budget, the government had removed seven-year tax holiday on natural gas production while continuing the same for oil production.

In a major development RIL, late last week, moved the Supreme court, challenging the Bombay High Court judgment asking it to supply gas to the former at a price that is 44% lower than fixed by the government. In its appeal filed in the Supreme Court on Saturday 4 July 2009, Reliance Industries contended that the high court had erred in deciding the three terms - quantity, tenure and price of gas supply to power plants of Reliance Natural Resources (RNRL) affiliates.

Shares of three state-run oil marketing BPCL, HPCL and Indian Oil Corporation fell 3.68% to 4.17% as the Union Budget 2009-2010 did not include a roadmap for decontrol of fuel prices in the country.

Bank stocks fell as increase in bond yields will result in diminution in value of banks' bond portfolio. India's biggest bank in terms of branch network State Bank of India (SBI) fell 8.6%.

India's largest private sector bank by net profit ICICI Bank fell 10.09%. India's second largest private sector bank by net profit HDFC Bank fell 5.88%.

Bond yields tumbled after Mukherjee announced plans to borrow a record Rs 4.51 lakh crore in FY 2010 to fund budget spending on roads, power and aid for the poor. Bond yields and bond prices are inversely related.

India's biggest dedicated housing finance firm by operating income Housing Development Finance Corporation (HDFC) fell 9% as the finance minister did not announce a hike in tax sops for housing loans contrary to market expectations.

Realty stocks fell as finance minister made no major announcement to boost the debt ridden sector reeling under slump in demand for new homes. DLF, Indiabulls Real Estate and Unitech fell by between 6.26% to 9.26%.

Metal stocks fell as the Finance Minister did not announced measures to safeguard the domestic industry against cheap imports. Tata Steel, Sterlite Industries, Hindalco Industries, Hindustan Zinc, National Aluminum Company fell by between 4.84% to 9.55%.

Capital goods stocks fell as measures announced by the finance minister in the budget fell short of market expectation. Siemens, Praj Industries, Thermax, Siemens, ABB, Thermax, Larsen & Toubro, Bharat Heavy Electricals rose by between 1.91% to 8.94%.

Power stocks fell as finance minister failed to announce major power sector reforms in the Union Budget . NTPC, Powergrid Corporation of India, Reliance Infrastructure, Reliance Power and Tata Power Company rose by between 5.06% to 12.47%.

IT stocks fell even as the Finance Minister extended deduction in respect of export profits under the Software Technologies Parks of India (STPI) scheme available under sections 10A and 10B of the Income-tax Act till the financial year 2010-11. Infosys, TCS and Wipro fell by between 2.27% to 3.75%. In order to tide over the slowdown in exports, the Finance Minister proposed to extend the sun-set clauses for these tax holidays by one more year i.e. for the financial year 2010-11. Last year, the benefit under this section was extended to one year till 2009-2010.

India's largest cigarette maker by sales ITC rose 3.13% after the Finance Minister left excise duty on cigarettes unchanged in the Union Budget 2009-2010.

Shares of fertiliser makers fell after the Finance Minister proposed a change in the method of subsidising fertiliser prices. Rashtriya Chemicals and Fertilizers, Nagarjuna Fertilizers & Chemicals, Zuari Industries, Chambal Fertilizers & Chemicals, National fertilizers, Gujarat State Fertilizers Company, Deepak Fertilisers and Petrochemicals Corporation, Tata Chemicals fell by between 4.56% to 11.31%. Finance Minister Pranab Mukherjee, while presenting the Union Budget for 2009-10, proposed a change in the method of subsidising fertiliser prices by shifting to a 'nutrient based subsidy regime' from a 'product pricing regime'

Shares of public sector companies fell after the Union Budget 2009-2010 lacked a clear road map on divestment in state-run firms. Mahanagar Telephone Nigam, Rashtriya Chemicals and Fertilisers, Engineers India, Power Grid Corporation of India, Shipping Corporation of India, Power Finance Corporation, Rural Electrification Corporation, Steel Authority of India (SAIL) and Mangalore Refinery and Petrochemicals fell by between 5.88% to 10.26%.

The government set an very small target of Rs 1120 crore from divestment for the financial year ending March 2010. The FM said the government will encourage people participation in divestment of state owned firms.

Market men had anticipated that the government may announce aggressive stake sale in public sector units (PSUs) where its stake is much higher than 51%. Finance Ministry's annual Economic Survey presented to the parliament on the eve of the budget had suggested raising Rs 25,000 crore annually from PSU divestment.

Shares of companies, whose business is related to the agriculture sector, fell even as the finance minister reiterated the government's thrust on the agriculture sector. Aries Agro, Advanta India, Jain Irrigation, Monsanto India and Kaveri Seed Company, fell by between 3.3% to 9.1%.

Finance Minister Pranab Mukherjee, while presenting the Union Budget for 2009-10, said government will ensure that agriculture grows by at least 4% per year.

He assured to pay additional interest rate subvention of 1% to farmers who pay short-term farm loans on schedule. He also proposed to extend agriculture debt waiver by six months and to provide additional Rs 1000 crore over interim budget for irrigation.

Cals Refineries clocked the highest volume of 9 crore shares on BSE. Unitech (2.65 crore shares), Suzlon Energy (2.22 crore shares), GVK Power & Infrastructure (1.95 crore shares) and IFCI (1.69 crore shares) were the other volume toppers in that order.

Reliance Industries clocked the highest turnover of Rs 382.04 crore on BSE. Educomp Solutions (Rs 330.34 crore), Reliance Infrastructure (Rs 305.24 crore), Reliance Capital (Rs 253.22 crore) and ICICI Bank (Rs 241.72 crore) were the other turnover toppers in that order.

Dish TV India slipped 7.71% after the Finance Minister imposed 5% customs duty on set top boxes.