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Budget disappoints markets
Thu, 28 Feb Closing

With Budget 2013 proving to be non committal towards significant reform measures, investors in Indian stock markets gave a thumbs-down to it. As a result profit booking was seen across index heavyweights post noon. Profit booking in banking, commodity, engineering and infrastructure heavyweights led the Indian indices to be the sole losers in Asian region today. While the BSE-Sensex closed lower by around 291 points, the NSE-Nifty closed lower by 104 points. The BSE Mid Cap and the BSE Small Cap lost almost 2% each in today's trade.

As regards global markets, most other Asian indices closed higher today while European indices have also in the positive. The rupee was placed at Rs 53.5 to the dollar at the time of writing.

As per the Budget announcement, before the end of FY13, the Finance Ministry shall provide Rs 125.2 bn as an additional capital infusion for 13 PSU banks. This is set to increase to Rs 140 bn in FY14. The government is committed that these banks will meet Basel III norms as and when they come to force in a phased manner. While the additional capital headroom will be a positive for the PSU banks, ones struggling to rein in slippages in restructured assets will fail to capitalize on the growth opportunity.

For the auto sector, the Budget proposed to increase the excise duty on SUVs from 27% to 30%. However, the increase will not apply to SUVs registered as taxis. This is a negative for players such as Mahindra & Mahindra (M&M), Tata Motors and Maruti Suzuki, which are strong players in the overall UV space. It must be noted that at a time when most segments in the auto industry were under pressure, utility vehicles (UVs) including SUVs grew at a very healthy pace in the current fiscal.

For investors in stock markets, we've never believed that Budgets have the ability to alter the long term story of an economy. More so a budget as neutral as this one. Hence one would be better off not focusing on it too much. Attention should instead be paid to the fundamentals of the company and the valuations that it is trading at.

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