Budget impact wears off

Mon, 28 Feb Closing

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While the Indian markets began the day on a positive note, they traded within a narrow range ahead of the Budget speech. Post the Budget, markets soared as the fiscal roadmap cheered investors. However, this effect wore off in the ensuing hours and although the indices closed in the green in the final trading hour, some of the day’s earlier gains were substantially eroded. While the BSE-Sensex closed higher by around 131 points (up 0.7%), the NSE-Nifty closed higher by around 30 points (up 0.6%). Both the BSE Small cap and BSE Midcap cloed with gains of 0.3% each. Gains were largely seen in FMCG stocks while healthcare stocks did not evince investors' interest.

As regards global markets, Asian indices closed mixed today while European indices have also opened on a mixed note. The rupee was trading at Rs 45.24 to the dollar at the time of writing.

The Union Budget announcement which seems to have enthused the markets most is the fiscal roadmap laid by the government. The Finance Minister in his speech stated that the fiscal deficit was down to 5.1% of GDP for FY11 (the last Budget had put the figure at 5.5%). For FY12, FY13 and FY14, the targets have been set at 4.6%, 4.1% and 3.5%. The positive is that the government acknowledges the importance of being the fiscal deficit down so that there is more headroom to spend on critical areas such as education, infrastructure and healthcare. It will be interesting to see how it manages to do so in an environment of high fuel prices. That said, although the target does look ambitious, this itself can bring about a significant downward pressure on interest rates if achieved.

Pharma stocks closed mixed today. While Pfizer, Lupin and Dr.Reddy's found favour, GSK Pharma and Aventis were at the receiving end. The pharma sector did not get much of a mention in the Budget. That said, the Finance Minister stepped up the plan allocation for health by 20% to Rs 267 bn. This is beneficial to the entire pharma sector as a whole. Further, weighted deduction on payments made to National Laboratories, Universities and Institutes of Technology to be enhanced to 200% from 175%. Other measures also included vaccines (other than those included in National Immunisation Program) being subjected to the concessional duty of 1% without CENVAT credit facility. This could impact players such as GSK Pharma and Aventis which derive some part of their revenues from vaccines.