The Indian equity market gave a thumbs down to the Union Budget on Friday with the Bombay Stock Exchange 30-share Sensitive Index (Sensex) losing 210 points to end the day at 17,466.20 With today's fall, the Sensex in the last 13 years since 2000 has fallen 9 out of the 15 times on the day of the budget. The good news is despite today's fall, the Sensex for 2012 is still up 13 per cent. "It's nothing positive or negative," was what Anand Tandon, group CEO at JRG, a south India-based financial services firm, had to say about the budget. The reason he feels why the Sensex has tanked is because it will see inflation rising and put further pressure on corporate earnings due to the rise in service tax (services sector accounts for 59 per cent of India's GDP). Similarly, concerns over rising inflation saw 10-year government securities (G-Sec) yield rising by 7 basis points to 8.43 per cent at 4 pm compared to yesterday's close of 8.36 per cent. In the last 15 days, the G-Sec yields have risen from 8.20 per cent to 8.43 per cent. "Foreign banks and private sector banks have been selling G-Sec and sitting on cash on expectation of further rise in yields due to excessive market borrowing from the government," said a local bond dealer. Though the equity market lost ground, it started on a positive note with the Sensex trading higher at 17,750, up 75 points at 11 in the morning when the finance minister started delivering his Union Budget. Within 30 minutes, the Sensex was up nearly 186 points at 17,861 after the minister announced plans to raise Rs 30,000 crore from disinvestment of state-run companies and allowing two-way fungibility in Indian depository receipts. This witnessed the Standard Chartered Plc IDR hitting a 20 per cent upper circuit. The stock ended at the upper circuit at Rs 94.20 with an outstanding buy order of 2.45 lakh shares on the BSE.The Sensex was also up with the finance minister proposing Rajiv Gandhi Equity Scheme helping to revive the retail investor interest in the equity markets. Says K. Sandeep Nayak, CEO at Centrum Broking, "More retail investors coming into the market to avail the tax benefit of Rs 50,000 for investment into stocks augurs well for the long-term health of the broking industry. This coupled with the reduction in securities transaction tax (STT) by 20 per cent on investment transactions is very positive for capital market intermediaries." The breaks given to the infrastructure sector and companies were also welcomed by the market. However, a rise in excise duties and services taxes pulled the Sensex from its intra-day high of 17,871 to touch an intra-day low of 17,426.58, down 2.5 per cent before closing the day at 17,466.20. Says Sandeep Singal, co-head institutional equities at Emkay Global, "The rise in cess for oil upstream companies and no specific provision made for capital goods sector pulled down companies like ONGC, Cairn India, L&T and Bhel which was largely responsible for the fall in Sensex." Cess on crude petroleum oil produced has been revised to Rs 4,500 per metric tonne from the current Rs 2,500.With no major positive trigger from the budget and on the backdrop of 13 per cent rise in the Sensex since the start of the year, what's in stored for the Indian equity market? "With the foreign inflow continuing, the market may still go up. Marketmen will forget today's event and life go on as usual starting Monday," says Tandon who feels that the big bet on interest rate cut will take now take a breather before we see the central bank cutting rates. Though Tandon feels that on basis of valuation, Indian equity is still fairly valued with the Sensex trading at 14 times forward earning and with liquidity continuing, the Sensex can rally another 15 per cent from the current levels. But beyond that, it looks difficult unless or until there are some positive structural change in the market. Agreeing with him, Singal of Emkay says, "With most of the negatives like concerns over Iran, rising oil prices and bailout in the Euro-zone already being discounted by the market, there isn't anything in the near future that could drive the market up or down. The Indian market will remain rangebound with the Sensex moving in a band of 1000 points between 17,000 and 18,000."
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Disappointing a large section of income tax payers in the country, Pranab Mukherjee made a small raise in the exemption limit in his Budget speech. The Finance Minister announced raising the tax exemption limit from the curent level of Rs 1.8 lakh to Rs 2 lakh in the Union Budget on Friday. For income up to Rs 2 lakh, the tax will now be nill. For those with an income between Rs 2 and 5 lakh, the tax rate would be 10 per cent. For income between Rs 5-10 lakh the tax bracket will be 20 per cent. Income above Rs 10 lakh will now come under the 30 per cent tax bracket. The Finance Minister also announced the introduction of DTC tax rates while corporate tax rates were left unchanged. Savings accounts will now get Rs 10,000 tax deduction for interest earned.The Parliamentary standing committee on finance had recommended an increase in basic tax exemption limit to Rs 3 lakh and another Rs 3.20 lakh rebate for eligible investments and spending in its report on the direct taxes code, or DTC. The Direct Taxes Code Bill had proposed the basic exemption limit of Rs 2 lakh.The senior BJP leader Yashwant Sinha headed panel that looked into the bill had also asked the government to continue with higher exemption limit for women. The panel had suggested retaining the three-slab structure of 10 per cent, 20 per cent and 30 per cent for personal income tax.The exemption limit for the senior citizens between 60 and 80 years of age will be Rs 2.50 lakh; 10 per cent will be levied on income between Rs 2.5-5 lakh, 20 per cent between Rs 5-10 lakh and 30 per cent above Rs 10 lakh. (Agencies)
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The Finance Minister Pranab Mukherjee in his Union Budget 2012-13 speech announced a change in Initial Public offering ( IPO) guidelines to increase participation in small towns. The FM also announced allowing qualified Foreign Institutional Investors (FII) into corporate bonds. A new scheme to boost savings and the launch of Rajiv Gandhi Equity Scheme was also announced. The Finance Minister expects the tax free bonds to raise Rs 60,000 crore in the next financial year as compared to the sanction for Rs 30,000 crore this year.The FM's attempt at tax incentives to lure new investors and to broaden the reach of IPOs, make sense when you consider that the share of household savings deployed in capital markets has come down sharply. But it remains to be seen if Indians will switch to capital markets without pension and insurance funds being allowed to freely invest in equities.(Agencies)
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As expected the Reserve Bank of India (RBI) did not cut rates. It had no reason to. A 75 basis point (bps) cut in the cash reserve ratio (CRR) to 4.75 per cent kicked in only five days ago (effective March 10th). And there was only an outside chance of a fresh round of cuts ahead of the Union Budget for 2012-13 on Friday.The central bank had already indicated in its last meeting that policy rate action going ahead would be contingent on the extent of fiscal consolidation the government would target in 2012-13. It would become clear only tomorrow and a repo rate cut right now could, therefore, have been construed as premature.Wait & WatchThe key takeaway from Thursday's review is inflation appears to have come back on top of the central bank's radar. Year-on-year (YoY) headline inflation which held above 9 per cent during April-November 2011 has been on a see-saw since. It dropped to 7.7 per cent in December, and lower to 6.6 per cent in January 2012, only to head northwards to 7 per cent in February. The worry for RBI is "upside risks to inflation have increased from the recent surge in crude oil prices, fiscal slippage and rupee depreciation".Then you have growth. GDP growth YoY decelerated to 6.1 per cent in the third quarter of 2011-12 from 6.9 per cent in the second quarter. Given the growth-inflation dynamics, the RBI is clear the next rate move is lower. But it has categorically said notwithstanding the deceleration in growth, "inflation risks remain, which will influence both the timing and magnitude of future rate actions"."Today's statement does appear to be more hawkish, with the focus more firmly back on inflation. Unlike the previous policy where the RBI had said the rate decision would be contingent on fiscal consolidation and steps to incentivise investment, this time it has broadened its emphasis to other variables fuelling inflation", explains Rohini Malkani, Chief Economist at Citigroup (India)."It quite evident RBI would partly base its decision to cut policy rat, on the emerging core inflation figures and developments on oil and other commodities front. It appears that RBI is comfortable with current GDP growth rate of 6 per cent plus and is not in a hurry to boost growth. Due to weak domestic demand and higher base effect, the core inflation is expected to moderate further in 2012-13. This would provide room to RBI to cut rates and boost growth. We expects a 150 bps cut in repo rate in going ahead", says Shyam Srinivasan, MD & CEO of Federal Bank.Economic Survey, Railway BudgetThe new variable is the Economic Survey which has slightly queered the pitch as it sees a strong GDP growth of 7.60 per cent for the coming fiscal. "The Budget will be keenly watched to ascertain the extent of fiscal deficit and the gross borrowing needs. Any large deficit and consequent borrowing program could affect liquidity in the market and rates", notes Krishnamoorthy Harihar, Treasurer, FirstRand Bank who adds "good revenue projections from disinvestment as well as telecom auctions, which could lead to a manageable fiscal deficit", would be a key.The RBI would watch inflation numbers in the coming months as the base year effect wears off, and the recent railway freight hikes and possible diesel and petrol price hikes find their way into inflation numbers. "So while hopes rest on a lower inflation number in the coming weeks, oil price trajectory in international markets, as well government moves on pass through of crude costs could influence inflation levels and consequent rate moves", explains Harihar.If the government does expect to target a lower fiscal deficit next fiscal, is a repo rate cut in April still likely? While upside risks to inflation remain, especially from structural factors (such as fiscal slippage and demand-supply imbalances in key food items) and firm global commodity prices, these are likely to curtail the degree of monetary easing going ahead. "They are unlikely to delay or derail it. We, therefore, retain our expectation that the first repo rate cut (25 bps) will likely come in the April annual review paving the way for 50-75 bps of additional repo rate cuts for the remainder of the year and taking the total repo rate cut tally for the year to a relatively modest 75-100 bps", Abheek Barua, Chief Economist at HDFC Bank which expect a deficit of 4.9 per cent GDP in 2012-13 against 5.7 per cent in 2011-12),
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Indian stock markets have given the second highest returns between 2003-04 and April-December of 2011-12 among the prominent Asian bourses over the past eight years, according to the Economic Survey.An analysis of major Asian countries' stock indices show that the 30-share Sensex gave the second maximum cumulative returns, while the highest return was given by Indonesia's benchmark Jakarta Composite Index, the Economic Survey 2011-12 said."Among selected Asian Indices, the Jakarta Composite Index posted a maximum cumulative return of 419.5 per cent in 2011-12 (April-December) over 2003-04 followed by the BSE Sensex Index (176.4 per cent), S&P CNX Nifty Index (161.0 per cent)...," it said.Other indices compared are Japan's Kospi, Indonesia's Kuala Lumpur Comp, Hong Kong's Hang Seng, Taiwan's TSEC.During the same period, the returns of other indices were "Kospi Index (107.4 per cent), Kuala Lumpur Comp Index (69.7 per cent), Hang Seng Index (45.4 per cent), SSE Composite Index (26.3 per cent), and TSEC weighted Index (8.4 per cent)," the report said.(PTI)
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Tax payers will be looking forward to some relief from Finance Minister Pranab Mukherjee who is expected to raise the income tax exemption limit to at least Rs 2 lakh in his budget proposals to be unveiled in the Lok Sabha on Friday.The Minister may also marginally raise the slabs in other tax brackets of 10 per cent, 20 per cent and 30 per cent. The Direct Taxes Code (DTC) Bill has also made a mention of it.The DTC, which will replace the Income Tax 1961, however, will only come into force from 2013-14 and the Minister may make a formal announcement on it in his budget speech.The Standing Committee of Parliament that has scrutinised the DTC Bill has already submitted its report to the Lok Sabha Speaker.Although the Committee had suggested raising the tax exemption limit to Rs 3 lakh, it is unlikely that Mukherjee will agree to it in view of the need to contain fiscal deficit.With limited space for give aways, the Budget is likely to balance populism with some tough measures to check tax evasion and generation of black money.However, in view of reverses in the recently concluded state assembly elections, Mukherjee may go slow on economic reforms like FDI in multi-brand retail and further opening of the insurance sector to foreign investment.There could be some bad news for prospective car buyers as government may hike duties on luxury items to raise resources.The biggest challenge before Mukherjee would be to arrest decline in economic growth which is expected to touch a three year low of 6.9 per cent in the current fiscal, down from 8.4 per cent in the two previous years.Further, the government is likely to set disinvestment target for the next fiscal at Rs 30,000 crore.Persistent inflationary pressures despite hawkish monetary policies, high fiscal deficit and rising oil prices are also straining the country's economic parameters.Tomorrow's Budget, that would set the ball rolling for initiatives in the 12th Five-Year Plan period (2012-17), comes against the backdrop of slowing economic growth projected to be 6.9 per cent in the current fiscal."With agriculture and services continuing to perform well, India's slowdown can be attributed almost entirely to weakening industrial growth," according to the Economic Survey tabled in the Parliament today.Further, the government is facing the challenge of reining in fiscal deficit. The target of 4.6 per cent deficit for the current financial year would not be met, mainly on account of rise in subsidies and lower realisation from disinvestments.Overall inflation inched up to 6.95 per cent in February compared to 6.55 per cent in the previous month. However, the government is optimistic it would come down to about 6.5 per cent by March end.The Reserve Bank of India (RBI) today left the key rates unchanged while asserting that future policy action would be determined by the movement in inflation.Last week, the RBI reduced Cash Reserve Ratio (CRR) -- the percentage of deposits banks have to keep with the apex bank -- to 4.75 per cent from 5.5 per cent.On the other hand, the government's efforts to raise money through disinvestments this fiscal has not met with much success. So far, only about Rs 14,000 crore has been mopped up by way of divestments in public sector undertakings (PSUs) as against the target of Rs 40,000 crore.While Rs 1,145 crore was raised through an follow-on public offer (FPO) of PFC, Rs 12,767 crore came from 5 per cent stake auction in ONGC.(PTI)
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Amid demand for softening of monetary policy to promote growth, the Plan panel on Friday said any move by Reserve Bank to lower interest rate will mainly depend on the government's ability to contain fiscal deficit."Interest rate is going to be determined predominately by what happens to the fiscal deficit. The industry is convinced that no matter what happens to fiscal deficit, the RBI will lower the repo rate," Planning Commission deputy chairman Montek Singh Ahluwalia said here at an Assocham conference.India's fiscal deficit is expected to be 5.6 per cent of Gross Domestic Product (GDP) this fiscal as against the budget estimates of 4.6 per cent of GDP.The central bank is expected to take more steps in its policy review on 15 March to ease liquidity situation to promote economic growth which is expected to moderate to 6.9 per cent in the current fiscal from 8.4 per cent a year ago.The Reserve Bank in its last policy review reduced Cash Reserve Ratio, the money the banks are required to maintain with the central bank, by 0.5 percentage point to 5.5 per cent to release Rs 32,000 crore of primary liquidity into the system.RBI has raised the key interest rate 13 times since March 2010.Ahluwalia also said: "The determinants of long-term interest rates in India are really going be things like what happens to fiscal deficit and what happens to funds outside the country, which will determine general liquidity".He expressed concern over that the mounting current account deficit (CAD) and said, "Can India finance CAD of 3 per cent of GDP, which is about $15 billion a year inflow?"CAD is a reflection of gap between foreign exchange inflows and outflows and is estimated to be 3.6 per cent of GDP."Now inflows from all sources like FII, FDI will finance current account deficit. It is very difficult to judge prospects right now simply because there is huge uncertainty internationally," Ahluwalia said.Earlier on Wednesday, the Prime Minister's Economic Advisory Council (PMEAC) chairman C. Rangarajan had said efforts should be made to limit CAD to 2-2.5 per cent."While the position in regard of capital flows has greatly improved, it will however be judicious to try and limit the CAD...especially as long as international financial markets continue to be adversely impacted by the troubles in the Eurozone".However, after release of PMEAC's economy review, finance minister Pranab Mukherjee on Thursday exuded confidence that the government will be able to manage the situation by stepping up exports."CAD is a matter of concern. I think we will be able to manage CAD because our export basket and destinations are getting diversified ... with the introduction of new manufacturing policy I do hope exports should get a boost," Mukherjee had said.PMEAC has projected CAD at 3.6 per cent of GDP in the current fiscal and 3 per cent in 2012-13. It stood at 3.6 per cent during April-September of this fiscal. (Reuters)
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The Reserve Bank of India (RBI) may intervene in the forward foreign exchange market, in addition to the spot market, to help manage liquidity in the banking system, a central bank source said on Friday.The RBI has been intervening in the forex market since September to stem the rupee's fall. The rupee fell nearly 16 per cent in 2011, making it one of the worst performing currencies in the world.It has, however, recovered smartly in 2012, gaining nearly 6 per cent so far, helped by renewed flows in equity as well as large inflows into debt."If and when we are doing it (intervention), we may do a combination of spot and forwards, so liquidity impact is shifted to a future date," the source said.The central bank has been active in the forex market in recent months, in a bid to prop up the rupee. Traders have routinely suspected the RBI's hand in the market, especially in late hours of trade.The official central bank intervention data comes with a month's lag. The RBI sold $2.92 billion in the spot market in November, its biggest sale of dollars in over two-and-half years.Net outstanding sales stood at $1.62 billion in the forward market in November, the first time the RBI has intervened in the segment in over a year.Wednesday, RBI deputy governor H.R. Khan said that any central bank intervention, as and when it happens, will be a combination of both cash as well as forward basis."But there is a limit upto which you can do forward because then the premiums will disturb other rates," he said, adding the amount is decided based on the market condition.Banks borrowed 1.59 trillion rupees from the central bank's repo window on Friday, compared with 1.45 trillion rupees on Wednesday, and significantly higher than the RBI's comfort zone of 600 billion rupees, indicating the tightness in liquidity.Tuesday, the central bank slashed its cash reserve ratio by 50 basis points to inject 320 billion rupees in the banking system. The cut will be effective Saturday. In addition, it has bought 700 billion rupees of bonds since November to support the government's large borrowing programme.At 2:45 p.m. (0915 GMT), the rupee was at 49.46/4650 to the dollar, after touching 49.44, its highest since November 9, and firmer than 50.09/10 at close on Wednesday. The market was closed on Thursday for a local holiday.(Reuters)
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