Union budget to set the direction for market

Investors may remain cautious ahead of the Union Budget. However market may see a subdued start tracking weak Asia. The Union Budget 2009-2010 at 11:00 IST today, 6 July 2009, will play a key role in dictating further market direction as it will help to gauge the new government's policy stance. The mega event becomes all the more important in the wake of the global financial crisis.

The market is expecting a big bang economic reforms by the Congress-led government after its thumping victory in the 15th Lok Sabha elections. Sector specific action may be seen as finance minister may announce measures to support growth and incentives for sectors like infrastructure, auto, realty, textiles, education, agriculture, steel, healthcare among others.

Asian stocks declined today as commodities prices and shipping rates dropped amid concern the global economic recovery will falter. The key benchmark indices in Hong Kong, Japan, Singapore and Taiwan fell by between 0.4% to 1.58%. The key benchmark indices in China and South Korea rose by between 0.23% to 0.6%.

Trading in US futures indicated Dow could fall 46 points at the opening bell today, 6 July 2009.

The US markets had remained shut on Friday, 3 July 2009 on account of their Independence Day.

Back home, the broad expectations from the budget are thrust on infrastructure, including easier financing of long-gestation infrastructure projects, a plan for disinvestment, some reforms such as hiking foreign direct investment limit for insurance and a clear road map to rein in the high fiscal deficit in the future. Consumption is likely to be shored up through the various rural spending programmes. At the same time, the government may rollback tax sops given to sectors doing well such as services.

The corporate sector is expecting a removal of the fringe benefit tax (FBT). Under the current dispensation, an employer has to pay FBT at 30% on the fringe benefit, the taxable value of which is determined in accordance with a formula. FBT is a tax levied on perquisites-or fringe benefits -provided by an employer to his employees.

Domestic brokerages and fund houses want the government to remove securities transaction tax (STT) on trading in securities in the Budget. The Securities & Exchange Board of India (Sebi) members have already forwarded the demand of premier stock exchanges, BSE and NSE, to Finance Minister Pranab Mukherjee for scrapping STT in the Budget.

STT, which was introduced in the Union Budget 2004-05 by the then Finance Minister P Chidambaram, taxes every purchase and sale of securities entered into in a recognised stock exchange in India in securities like shares, debentures, bonds, and units of mutual funds. Equity investors pay an STT of 0.125% for every transaction in cash for the delivery of shares.

The Economic Survey for 2008-09 presented by Finance Minister Pranab Mukherjee in Parliament on 2 July 2009 said that India's industry is recovering from a slowdown in the last financial year. There are positive signs the Indian industry may have weathered the most severe part of the shock and is moving toward a recovery, the survey indicated.

Meanwhile, the Employees' Provident Fund Organization (EPFO) on Saturday deferred the decision on investing 15 per cent of its corpus of about Rs 1.82 lakh crore into equity, a move which could have seen Rs 25,000 crore flowing into the capital markets. EPFO has decided to retain the interest rate at 8.5 per cent for year 2009-10 for 50 million provident fund subscribers.

As per the provisional figures on NSE, the foreign funds bought shares worth Rs 210.82 crore and the domestic funds bought shares worth Rs 298.58 crore on Friday, 3 July 2009.