Markets buoyed by GDP estimates

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After the thumbs up given to the Union Budget announced last week, the markets were further buoyed today by the announcement made with regard to 9% GDP growth in 4QFY10. The Prime Minister's economic advisor Mr. C Rangarajan has said that the economy is likely to grow by around 9% in 4QFY10 and would make up for the slow expansion of 7.2% in 3QFY10. This would be supported by higher industrial production and better Rabi crops. The Union Budget 2010 brought some cheer to the Indian markets, which had been reeling under fear for the past few days with respect to the government's stimulus withdrawal. Also, much of the stimulus withdrawal has been in line with what the markets had been expecting. Stocks from commodity, auto, and power sectors led today's gains.

The BSE Sensex and NSE Nifty closed with gains of around 343 points (2.1%) and 95 points (1.9%) respectively. Mid and small cap stocks also closed with gains. The BSE Midcap and BSE Smallcap indices closed higher by 2.2% and 2.3% respectively. Among key Asian markets, while China and Hong Kong closed marginally in the red, India and Korea were among the lead gainers. European markets have opened lower today. The rupee is trading at 46.04 to the dollar.

Following Finance Minister's announcement of RBI's intent to grant fresh bank licences, a host of non-banking finance companies such as IDFC, Aditya Birla Financial Services, Reliance Capital, Religare Enterprises and Indiabulls are planning to seek the banking licences. Infact smaller finance companies such as Srei Infrastructure and Shriram Transport Finance have also expressed their intent to approach the regulator. Foreign banks, most of which operate in the country as branches of an overseas subsidiary, are unlikely to apply given the higher tax that they would have to shell out on setting up an Indian banking company. Besides, many of the global banks are going slow on overseas expansion due to the stress in their home markets. While the RBI has not given any fresh bank licences in the last 5 years (after Yes Bank), it needs to be rather careful of not allowing heavily risk exposed entities to get into banking.

One sector that seems to be rather disappointed with the budgetary allocations is the healthcare industry. While players in the sector had recommended immediate policy reformation and a move towards a combined public and private healthcare spending equal to 7% of GDP over the next three years, up from the current 4.5%, the budget seems to have left a lot to be desired. Although the Budget raised the plan allocation for the ministry of health and family welfare by 14% to Rs 195 bn, the players in the pharma sector believe that the same is not sufficient to enhance healthcare spending in the country. The focus on domestic market by pharma players is a fallout of stricter regulations and tighter government budgets in the US and Europe. Most companies in the sector ended higher today.

Petrol and diesel prices rose about 6% and 8% respectively after the government increased excise and customs duties on the fuels as part of Union Budget 2010, which stressed fiscal prudence to cut a wide deficit. However, with food prices rising at an annual rate of nearly 20%, the government's allies have been opposing this move. But the government seems to be in no mood to give in to populist policies at the cost of economic interest. Prime Minister Mr. Manmohan Singh has already clarified that populist policies would hurt the economy in the long-term and that the impact of increase in fuel prices on Wholesale Price Index (WPI) will be no more than 0.4%. Energy stocks like Reliance, Petronet LNG and Gujarat Gas closed higher today.