Ultimately, the stock market remained open on Budget day, as SEBI, after a lot of dilly-dallying, gave special permission to exchanges to stay open, despite it being a Saturday. It was good for the investors, as they could take a position even as the Budget speech was on. In fact, Budget day turned out to be a highly volatile trading day, the likes of which we have not seen in the recent past. The market moved between the green zone and the red zone, creating hope and despair among investors. When the finance minister started making his speech, the Sensex was at 29476. From there, it dipped below 28000 by the time FM was through with his speech. Ultimately, the index recovered some lost ground and closed in the green zone at 29361 – a notch below where it stood when the Budget speech began, clearly suggesting that the market was giving a thumbs down to the Budget.
Of course, the market was hoping for a Dream Budget from the FM, as the macros were all in favour of the government – there was a fall in the price of international commodities; the stock market was buoyant; and, last but not the least important, a majority in the Lok Sabha had given enough indication that this government could push big reforms. “The government was playing the game for a test victory, while the market probably expected a T20 spectacle,” suggests Nilesh Shah, managing director, Kotak Mutual Fund. But as we had even stated in our Budget analysis last year, the days of big bang reforms are over, as governments these days have to buy consensus and/or build it, which takes time.
So, the high expectations of the Budget did not fructify. In fact, there is very little in the Budget that can cheer the stock market, as most of
the announcements will evolve over the long term and it would take time for the effect to percolate down to real economy and India Inc’s earnings. “The policy framework is being redesigned to transit India from a command economy to co-operative federalism; from job seeker to job creators,” says Shah of Kotak. “This Budget is seeking to create a unified market to generate and percolate overall growth by means of GST. The beneficial impact of the Budget on the economy will be reflected over the next few quarters.”
Normally, a stock market looks for reforms like a disinvestment target, lower taxes and so on. But nothing of that sort was seen in this Budget. After many years, the finance minister did not touch upon the disinvestment target in the Budget speech. In the Budget document, it has been put at ?69,500 crore. In the last Budget, Jaitley had talked about a reduction of government stake in public sector banks but this time he did not even touch upon it. In the last Budget, the FM also talked about mergers between public sector banks and
also about non-voting shares to be issued by the public sector in such a way as to ensure that the government can retain majority control and yet raise money.
But, this time, his silence on these aspects creates doubt whether the government was serious about taking these stated measures mentioned last year. What the finance minister said in the Budget was about holding and investment companies for banks, but again, he did not give any timeline for the same. One is not even sure whether this will happen during the present government’s regime.
So, in a way, there is nothing in this Budget for the stock market to cheer about. Of course, the minister did talk about quite a few macro factors that reassured the audience – such as the reference to GST roll-out by 1 April 2016. Had he not mentioned it, investors would have become nervous. Even the GAAR deferral by two years is a welcome step for the stock market. But these two measures were already in the list of things to happen and, hence, a mention of it did not create any positive sentiment.
What has not figured in the Budget is the long-term capital gains on equity. There were many who feared that the government would bring in long-term capital gains on equity in line with other capital assets and, thereby, do away with the security transaction tax. But the FM may have thought that the time is not conducive for a trade-off, as the tax revenue from STT is quite robust. Also, since the stock market was doing well, it made more sense not to disturb the equilibrium. Jaitley proudly
announced that India’s stock market was the second best performing market in the world. He believes that this sentiment would continue and, hence, the budgeting for higher revenue from STT. Next year’s target for STT has been put at ?6,531 crore, as against the revised estimate of ?5,992 crore for 2014-15.
It gives one a feeling that the government has become a little cautious about pushing reforms, which are
Last Budget to this Budget
Nifty 50 companies performance
|Company name % gain|
|Kotak Mahindra Bank||61.2|
|Maruti Suzuki India||43.0|
|Bharat Petroleum Corporation||28.5|
|Dr. Reddys Laboratories||26.3|
|Sun Pharmaceutical Industries||25.4|
|Zee Entertainment Enterprises||20.9|
|State Bank of India||18.5|
|Power Grid Corporation of India||14.0|
|Tata Consultancy Services||13.8|
|Bank Of Baroda||12.2|
|Mahindra & Mahindra||10.8|
|Bharat Heavy Electricals||7.5|
|Larsen & Toubro||6.8|
|Punjab National Bank||-9.4|
|Tata Power Company||-18.0|
|Oil & Natural Gas Corporation||-19.6|
|jindal Steel & Power||-34.9|