Lacklustre Budget hurts indices

Fri, 16 Mar Closing

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Indian stock markets had a volatile outing today. While the indices began the day's proceedings on a positive note in anticipation of the Budget, subsequent sessions saw the indices pare gains and plunge into the red as the Budget failed to adequately address some key issues. There was no respite in the final trading hour either and the indices closed well below the dotted line. While the BSE-Sensex closed lower by around 210 points (down 1%), the NSE-Nifty closed lower by around 63 points (down 1%). The BSE Mid cap and the BSE Small cap were not spared either as they closed lower by 1% each. Barring FMCG and auto stocks, losses were seen across sectors.

As regards global markets, barring China most Asian indices closed weak today while European indices have opened in the green. The rupee was trading at Rs 50.33 to the dollar at the time of writing.

Auto stocks closed mixed today. While Mahindra & Mahindra Ltd. (M&M), Ashok Leyland and Maruti Suzuki found favour, Tata Motors (Telco) and Bajaj Auto closed into the red. With the basic excise duty hiked to 12% from 10% in the Budget today, vehicles are set to get expensive. Not just that, the duty on large cars has been hiked from 22% to 24%. Auto companies in India have had a difficult year so far as higher fuel prices and interest rates have dampened demand. Further, high commodity prices have also translated into a rise in input costs thereby denting margins. Thus in such a scenario, with the increase in duties, most auto companies are likely to pass on the hike to consumers. The positive for the sector was that there was no additional tax levied on diesel cars. There were several suggestions from various quarters that the government should tax diesel vehicles or impose a tax on diesel used for private cars to offset some of the losses of oil marketing companies. Indeed, with petrol prices getting raised, most auto companies witnessed a surge in demand for diesel cars in the past one year.

The budget certainly lacked any big bang wealth creating opportunity as far as the stock markets are concerned. But it did try to do its bit to enhance the depth of the market and pump in more liquidity into the same. Introduced for the first time ever, the Rajiv Gandhi Equity Savings scheme allows for income tax deduction of 50% to new retail investors. However, the investment is subject to a maximum limit of Rs 50,000 and restricted to investors with annual income of less than Rs 10 lakh. Besides, the scheme also has a lock in period of 3 years.

This move is certainly a precursor to the proposed Direct Taxes Code. But it is also an attempt to bring in more retail investors into the markets. It is indeed sad that Indian markets have to still rely on FII inflows for its daily movements. Thus, if it has to have any hope of reducing this dependence, measures like the ones taken in the latest budget are more than welcome.