Market may open flat to slightly lower; all eyes on the Budget

The market may open flat to slightly lower on weak Asian stocks. Union Budget 2011-2012 will set the tone for the market later in the day. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a fall of 3 points at the opening bell. As per provisional figures, foreign funds sold shares worth Rs 561.46 crore and domestic funds bought shares wroth Rs 555.29 crore on Friday, 25 February 2011.



Investors will closely watch the announcements made in the Union Budget 2011-2012 to be presented by Finance Minister Pranab Mukherjee in the parliament at 11:00 IST today, 28 February 2011. Fiscal consolidation, extent of infrastructure spending, clarity on key direct and indirect tax reforms viz. the Goods and Services Tax (GST) and the Direct Taxes Code (DTC), better targeting of subsidies are some important issues which investors are eyeing in the Budget. Stock specific/sector specific movement will be witnessed based on announcements for various sectors in the Budget.

The government's Economic Survey for 2011-11 tabled in the parliament on Friday, 25 February 2011, called for early introduction of the GST, a key indirect tax reform. The original deadline of 1 April 2010 for roll-out of GST has already been missed due to the lack of consensus between the Centre and states on the issue. GST is India's most ambitious indirect tax reform plan, which aims to stitch together a common market by dismantling fiscal barriers between states.

The Survey stressed on an urgent need to streamline land acquisition and environment clearances for infrastructure projects. The Survey has also favoured a phased opening of foreign direct investments in multi-brand retail saying it could help address concerns of consumers and farmers, besides bringing technical know-how.

Marketmen expect the government to continue thrust on development spending in the Union Budget 2011-12. The capital goods sector expects the government to selectively raise import barriers for capital equipment, especially power equipment to facilitate domestic players. For the auto sector, marketmen expect the government to keep excise duty rate unchanged in the Budget. In the previous budget, the excise duty was increased by 2%.

The IT industry expects extension of the sunset clause on tax exemption for software technology parks under Section 10 A/10 B which is due to expire in March 2011. For the metal sector, marketmen expect hike in import duty on HR coil from 5% to 10% in the Budget to encourage the growth of domestic steel industry. The metal industry also expects a continued thrust on infrastructure spending in the Budget.

Banking and financial sector anticipates that the government might reduce the tenure limit for tax exempt deposits from five years to three years in the Budget. Market men also expect government subsidy/concessions on interest rates to be provided on lending to State Electricity Boards (SEBs) given their weak financial health. Another expectation is that of a hike in limit of refinancing from India Infrastructure Finance Company (IIFCL) to commercial bank loans for public-private partnership (PPP) projects in critical sectors from the current Rs 6000 crore.

The cement sector has sought a uniform rate of excise duty on cement as compared to differential rate of excise duty on cement sold above or below maximum retail price (MRP) of Rs 190 per 50 kilogram bag. The FMCG sector anticipates a continued thrust and higher allocations to social and developmental programs.

The media sector expects a relaxation of foreign direct investment (FDI) norms i.e. an increase in FDI limits from currently 49% in direct to home (DTH) and cable, 26% in news broadcasting & print media and 20% in radio sector.

Food inflation in India is largely driven by supply side pressures and the central bank is not responsible for that, the Reserve Bank of India (RBI) governor D Subbarao said on Saturday, 26 February 2011.

Asian shares edged lower on Monday, as the worsening situation in Libya stirred renewed concern about disruptions to oil production. The key benchmark indices in Hong Kong, Indonesia, Japan, Singapore and South Korea fell by between 0.04% to 1.12%. The key benchmark indices in China and Taiwan rose by between 0.24% to 0.68%. Worries that the surge in oil prices could hurt global economic growth had helped drag equities lower last week.

US stocks rose on Friday, 25 Ferbuary 2011, bouncing back from a three-day sell-off as oil prices stabilized. Adding to the positive tone, an index of consumer sentiment rose in February to its highest level in three years, according to the Thomson Reuters/University of Michigan Surveys of Consumers.