Stocks could be choppy ahead of Budget

The market could be volatile next week ahead of the expiry of the near-month February 2011 derivatives contracts on Thursday, 24 February 2011. The ongoing investigation into 2G telecom spectrum allocation scam may cap upside in the near term.



Stock-specific/sector-specific buying/selling is likely based on expectations from the Union Budget 2011-2012 to be unveiled by Finance Minister Pranab Mukherjee in parliament on 28 February 2011. Stock prices of companies such as Stone India, Kernex Microsystems, Texmaco, Kalindee Rail Nirman, Titagarh Wagon, BEML and Simplex Castings, which cater to the Indian Railways, will be in focus ahead of Railway Budget on Friday, 25 February 2011. The Economic Survey will be tabled in the parliament on the same day after the Railway Budget.

The Budget session of parliament begins Monday, 21 February 2011. Marketmen expect the government to continue thrust on development spending in the Budget. 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. 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.

Foreign funds continue to press sales on the bourses. FII outflow in February 2011 totaled Rs 2177.50 crore (till 16 February 2011). FIIs had sold equities worth Rs 4813.20 crore in January 2011. FII outflow in the calendar year 2011 totaled Rs 6990.50 crore (till 16 February 2011). FII had bought equities worth Rs 133266 crore in calendar year 2010.