Market may extend Friday's gains as investors sight budget may help consumption led growth

The market may extend Friday (26 February 2010)'s gains as finance minister Prananb Mukherjee in his budget presentation on Friday offered to progressively cuts its budget deficit over the next three fiscal years, changed personal tax rates which will lift disposable incomes in the hand of individuals and a reduced surcharge on corporate tax for domestic companies to 7.5% from 10%. Market had remained closed on Monday 1 March 2010 on account of Holi festival. Asian stocks were trading mixed.

The Finance Minister in his budget speech on Friday, 26 February 2010 said the government aims to introduce the Goods and Services Tax (GST) and implement the direct tax code from 1 April 2011 The peak rate of excise duties has been raised to 10% from 8% as a first step towards the winding down of fiscal stimulus measures. However, the service tax was retained at 10%. The government has estimated Rs 40000 crore from disinvestment for FY 2010-11. It has estimated Rs 35000 crore from sale of third generation telecom auctions.

The finance minister has raised personal income tax slabs which will result in increase in disposable incomes which in turn may boost consumption. The minimum alternate tax (MAT) has been raised to 18% from 15% of book profits. The fiscal deficit is pegged at 5.5% of GDP for 2010-2011, lower than an estimated 6.8% for the current fiscal year. The planned expenditure will rise 15% in 2010-2011. The increase in non-planned expenditure is only 6% for 2010-2011. The finance minister said the government also aimed to reduce the deficit further to 4.8% of GDP in the year starting 1 April 2011, and to 4.1% in the year from 1 April 2012. He said there is a need to review stimulus and move towards fiscal consolidation and review public spending.

A thrust on the infrastructure sector also augurs well from a long-term growth perspective. The Finance Minister has provided Rs 1.73 lakh crore for infrastructure development in 2010-2011, which accounts for over 46% of the total plan expenditure for the year.

The FM said the Indian economy is in a much better position than a year ago, though challenges remain. He added uncertainty was there on account of delay in monsoon and there are concerns about food prices. He said first challenge is to quickly revert to higher GDP growth path of 9% and cross double digit growth. The second challenge is to harden economic growth to make development more inclusive. The third challenge relates to problems in government system.

The economy is likely to do better in the quarter to March than the three preceding quarters, Finance Secretary Ashok Chawla said on Friday. The economy grew a slower than expected 6% annually in the December quarter, data showed on Friday.

Asian stocks were mixed on Tuesday 2 March 2010 after a firm start triggered as U.S. consumer spending increased more than expected and global semiconductor sales gained. The key benchmark indices in China, Hong Kong and Japan fell by between 0.02% to 0.66%. But, the key benchmark indices in Indonesia, South Korea, Singapore and Taiwan rose by between 0.1% to 1%.

The pace of Chinese manufacturing eased last month, suggesting slower government spending and steps to curb credit growth could be taking some of the steam out of the world's third-largest economy. The Purchasing Managers' Index (PMI) derived from a survey conducted by the China Federation of Logistics and Purchasing for the National Bureau of Statistics (NBS) fell to 52.0 in February from 55.8 in January.

US markets, stocks kicked off March with gains on Monday, 1 March 2010 led by technology stocks after an encouraging report on chip sales and strong outlook from Sandisk. Some M&A activity too gave the broader market a boost. The Dow Jones Industrial Average gained 78.53 points, or 0.8%, to close at 10,403.79, led by Intel. The tech-heavy Nasdaq jumped 1.6%, while the S&P 500 added 1%.

In economic data, the ISM reported that the manufacturing sector continued to grow in February 2010, even though it fell to 56.5 from 58.4 in January, as the gauge remained over 50. On the consumer front, personal spending rose 0.5% in January, even though income gained only 0.1%. Spending on both durable and nondurable goods was strong.

In its second reading of fourth-quarter gross domestic product of US, the Commerce Department said the economy grew at a 5.9% annual rate, rather than the 5.7% pace it estimated last month.

Governments need to coordinate exit strategies but the pace at which they unwind stimulus measures depends on their individual circumstances, senior officials said on Saturday on the sidelines of a G20 deputy finance ministers' meeting.

Figures on Friday 26 February 2010 showed the British economy grew faster than previously estimated in the last three months of 2009, the quarter in which it emerged from the longest recession on record, but finance minister Alistair Darling reiterated his warning that support for the economy needed to remain in place.

Closer home, the key benchmark indices pared gains after a sharp surge in early afternoon trade triggered by the finance minister's budget which pushed for higher consumption on Friday, 26 February 2010. The BSE 30-share Sensex rose 175.35 points or 1.08% to 16,429.55 on that day.

As per provisional figures on NSE, foreign funds bought shares worth Rs 841.23 crore and domestic funds sold shares worth Rs 859.63 crore on Friday.