Market gives thumbs up to Budget

The key benchmark index surged in the week ended Friday, 4 March 2011, after the Finance Minister refrained from raising excise duty in the Union Budget 2011-12 unveiled on Monday, 28 February 2011. The market logged gains in three out of four trading sessions. The stock market was closed on Wednesday, 2 March 2011, on account of Mahashivratri.



The BSE Sensex gained 785.50 points or 4.44% to 18,486.45 in the week ended Friday, 4 March 2011. The S&P CNX Nifty rose 235.20 points or 4.43% to 5538.75, its highest closing level since 17 February 2011. The BSE Mid-Cap index rose 3.76% to 6,592.12 and the BSE Small-Cap index rose 2.69% to 7,998.99. Both these indices underperformed the Sensex.

The favorable announcements in the Union Budget 2011-12 unveiled on Monday, 28 February 2011, were lower fiscal deficit target set by the government for the year ending March 2012, a lower-than-expected net borrowing programme, a thrust on infrastructure and agricultural sectors, reduction in surcharge on corporate tax, permission for foreign investors to invest in mutual fund schemes and plan to move towards direct transfer of cash subsidy to people living below poverty line. Among the unfavourable announcements were increase in social sector spending and a plan to bring food security bill which could strait government's finances going ahead. A slight increase in minimum alternate tax (MAT) also unnerved some.

The Finance minister announced a cut surcharge on corporate tax on domestic firms to 5% from 7.5% and projected a lower fiscal deficit target of 4.6% for the year ending March 2012 (FY 2012). He said while growth in 2010-11 has been broad-based, food inflation continues to remain a concern. Mukherjee also put emphasis on increasing agricultural productivity to curb food inflation. He added that financial sector reforms will move forward with the Insurance amendment Bill, LIC bill and Pension Development Authority Bill in current session.

The Finance Minister said Goods and Services Tax (GST) bill will be introduced in this session of parliament and that the new Direct Tax Code will be implemented from 1 April 2012. The Finance Minister allowed foreign institutional investors (FIIs) to invest in mutual fund schemes and raised limit the FII investment limit in corporate bonds for investment in infrastructure. He said government will introduce Public Debt Management Bill in 2012.

The government will spend Rs 1.6 lakh crore on social projects, up 17% from the last year. The finance minister said the government is on course to introduce the food security bill this year. The new Companies Bill will also be introduced he added. He said the economy is resilient to the external shocks. He said removal of supply bottlenecks in the food sector will be in focus in 2011-12.

The finance minister also proposed the issuance of tax-free bonds worth Rs 30,000 crore for infrastructure financing. Mukherjee said the government intends to spend Rs 2.14 lakh crore as budgetary support for the infrastructure sector in 2011-12, which is 23.3% higher than current year.

The Finance Minister re-iterated the Government's resolve to move towards direct transfer of cash subsidy to people living below poverty line in a phased manner. He said that the Nutrient Based Subsidy (NBS) has improved the availability of fertilizers and the Government is actively considering extension of NBS regime to cover urea.

The finance minister raised tax exemption limit on personal tax to Rs 1.8 lakh from Rs 1.6 lakh. For senior citizens, tax exemption limit has increased to Rs 2.5 lakh from Rs 2.4 lakh and the eligibility age for senior citizens will be 60 years against 65 years earlier. The Rs 20000 exemption for investment in infra bonds has been raised by another year.

The projected fiscal deficit for FY 2011 has been revised downwards to 5.1% from 5.5%. The fiscal deficit for FY 2012 has been projected at 4.6%. The projected fiscal deficit for FY 2013 is 4.1%.

The manufacturing sector expanded at its fastest clip in three months in February 2011 as more new orders poured in, but input prices rose at a record pace, a survey showed on Tuesday, 1 March 2011. The HSBC Markit Purchasing Managers' Index, based on a survey of around 500 companies, rose to 57.9 in February from 56.8 in January. This was the 23rd consecutive month the key index of manufacturing in Asia's third largest economy has been above the 50 mark that divides growth from contraction.

The output of six key industries expanded 7.1% in January 2011, faster than a downwardly revised growth of 6.1% in December 2010, government data showed on Tuesday, 1 March 2011 but slower than the 9.1% growth during the corresponding period last year.

Exports in January rose an annual 32.4% to $20.6 billion, while imports for the month rose 13.1% on the year to $28.6 billion, government data released on Tuesday, 1 March 2011, showed.

Trading for the week began on an upbeat note with the key benchmark indices edging higher on Monday, 28 February 2011, as investors digested various proposals in the Union Budget for 2011-2012. The BSE 30-share Sensex was up 122.49 points or 0.69% to 17,823.40. The S&P CNX Nifty was up 29.70 points or 0.56% to 5,333.25.

Higher auto sales and strong growth in manufacturing in February 2011 helped the market score strong gains on Tuesday, 1 March 2011, a day after the Union Budget for 2011-2012 on Monday, 28 February 2011, laid stress on infrastructure and agriculture sectors to spur growth and tame food inflation. The BSE 30-share Sensex was up 623.10 points or 3.5% to 18,446.50. The S&P CNX Nifty was up 189.05 points or 3.54% to 5,522.30.

Hopes for financial sector reforms and the latest data showing easing of food inflation in mid-February 2011 and the services activity expanding at its fastest pace in three months in February 2011, helped market eke out small gains in a highly volatile trading session on Thursday, 3 March 2011. The BSE 30-share Sensex was up 43.26 points or 0.23% to 18,489.76, its highest closing since 17 February 2011. The S&P CNX Nifty was up 13.90 points or 0.25% to 5,536.20, its highest closing since 17 February 2011.

The BSE Sensex snapped four-day gains on Friday, 4 March 2011, as high crude oil prices triggered profit taking. The BSE 30-share Sensex was down 3.31 points or 0.02% to 18,486.45 after striking day's high of 18,736.97 in early trade, its highest level since 27 January 2011. The S&P CNX Nifty was up 2.55 points or 0.05% to 5,538.75.

Among the 30-member Sensex pack, 28 gained while only two of them declined.

Index heavyweight Reliance Industries (RIL) rose 1.64% to Rs 981.75 in the week, as the sharp increase in global crude oil prices will improve refining margins.

Oil & Natural Gas Corporation (ONGC) rose 2.15%. Reportedly, the company's follow-on share sale is likely to be delayed to the first week of April 2011 from an earlier launch date of 15 March 2011. According to reports, ONGC is yet to complete some regulatory formalities, which are expected to be sorted out in the next few weeks. The government has approved a 5% stake sale in ONGC via a follow-on public offer that is expected to raise more than $3 billion. The Centre currently holds 74.14% stake in ONGC (as per the shareholding pattern as on 31 December 2010).

Interest rate sensitive auto stocks rose on higher sales in February 2011 and as the government kept excise duties on automobiles unchanged in the Budget contrary to market expectations of a 2% hike. India's largest tractor and utility vehicles maker by sales Mahindra & Mahindra jumped 13.64% to Rs 676.25 and was the top gainer in the Sensex pack. The company's total sales rose 25.4% to 52,419 units in February 2011 over February 2010, aided by robust 36.8% growth in tractor sales to 19,041 and 19.7% growth in automotive sales to 33,378 units.

India's largest bike maker by sales Hero Honda Motors gained 2.27%, after sales rose 23.54% to 4,72,055 units in February 2011 over February 2010.

Another bike maker Bajaj Auto advanced 7.25%, after company's total sales rose 21.7% to 3.26 lakh units in February 2011 over February 2010. Motorcycle sales jumped 22.2% to 2.86 lakh units and commercial vehicle sales increased 18.4% to 40,217 units in February 2011 over February 2010.

India's largest car maker by sales Maruti Suzuki India surged 12.21% after total vehicle sales rose 15.5% to 1.11 lakh units in February 2011 over February 2010. The company's domestic sales increased 19.8% to 1.01 lakh units, whereas exports fell 15% to 10,102 units in February 2011 over February 2010.

The government's focus on the rural economy also aided gains in shares of two-wheeler and car makers. Higher rural incomes may spur demand for two-wheelers and cars.

India's top truck maker by sales Tata Motors rose 5.85% after the company said its total sales of commercial and passenger vehicles rose 12% to 77,543 units in February 2011 over February 2010. Domestic sales rose 10% to 73,039. Exports, at 4,504 vehicles in February, were up 39% from 3,237 in the year-earlier period.

Reliance Infrastructure lost 4.86% to Rs 607 and was the top loser from the Sensex pack. Bharti Airtel shed 0.74%.

India's largest cigarette maker by sales ITC gained 10.47% after the finance minister kept excise duty on cigarettes unchanged in the Budget. A section of the market had expected increase in excise duty in the Budget.

Banking pivotals rose after the Union Cabinet cleared the Banking Regulation (Amendment) Bill 2011, which will now be placed for parliament's approval. India's largest private sector bank by market capitalisation ICICI Bank rose 2.94% and India's second largest private sector bank by market capitalization HDFC Bank gained 8.41%. India's largest commercial bank by branch network State Bank of India advanced 4.50%.

The Banking Regulation (Amendment) Bill seeks to give shareholders of banks voting rights in proportion to their holding. Currently, the voting rights of a shareholder are limited to 1% of the holding for state-run banks and 10% for private banks. Several banks and investors have been demanding changes to these rules. The bill also proposes that an individual or institution can hold a more than 5% stake in a bank only after receiving approval from the central bank.

India's largest steel maker by sales Tata Steel rose 1.58% on reports the company has increased its stake in Riversdale Mining, Australia, by close to 3%. The move gives a clear sense that the company has no intention to exit Riversdale anytime soon, putting to rest speculations to the contrary. Tata Steel has raised its stake Riversdale from 24.2% to about 27.1%