If the performance of the benchmark Sensex is a barometer to evaluate the reaction to the Union Budget, then the one presented on Wednesday has to be the best since 2005.
On Wednesday, the Sensex gained 1.76% or 485.68 points to close at 28,141.64. This is the best gain for the Sensex on a budget day since February 28, 2005 when the benchmark index had gained 2.19%. There was an overall positive sentiment with 1,913 stocks gaining ground on BSE, as against only 915 declines.
The broader Nifty gained 155.10 points or 1.81% to close above the psychological 8,700-mark at 8,716.40. The India VIX index – a barometer for near-term volatility – fell 16.97% from 16.83 to 13.97.
Interestingly, market participants say that there was no negative announcement related to capital markets, which led to the rally in the benchmark indices that traded mostly flat while the budget speech was on.
‘No bad news’
“No bad news on long-term capital gains tax is good news for the equity investors,” said Jaideep Arora, Chief Executive Officer, Sharekhan. “The Union Budget aims to stimulate the economy by healthy allocation for housing, agriculture and rural sectors, besides infrastructure development with focus on rail, roads and waterways.
Overall, it is positive for the Indian economy in general and equity markets in particular,” he added.
While stocks across sectors gained ground, those in the limelight included counters from housing finance sector. Finance minister Arun Jaitley has given infrastructure status to affordable housing that will enable the sector access to cheaper and easier credit.
Housing stocks
While HDFC gained 3.56% or Rs.48.60 to close at ₹1,414.95, LIC Housing Finance and Dewan Housing Finance were up 3.05% and 3.80%, respectively. Can Fin Homes and PNB Housing Finance also gained in the range of 1-3% each.
“This is an efficient and sensible budget and continues to follow the theme of maintaining fiscal discipline seen in the last two budgets,” said Dinesh Thakkar, Chairman & Managing Director, Angel Broking, adding that the fact there is no negative announcement for the capital markets should continue to attract foreign inflows.
Ahead of the budget, there were concerns in the market that the government might tinker with the tax rates, especially long-term capital gains (LTCG), which is nil if the shares are held for a period of more than one year. Incidentally, at a recent seminar, Prime Minister Narendra Modi had said that capital market participants need to make higher tax contribution.
FII shopping list
“The Finance Minister’s fourth budget has put India back on the shopping list of FIIs,” said Dhiraj Relli, MD & CEO, HDFC securities. “By restraining the fiscal deficit to 3.2% and promising to prune it down to 3% in the next year, Mr. Jaitley has delivered on fiscal prudence. But the Finance Minister’s best action is that he has not tinkered with the equity capital gains tax regime. The markets are rejoicing that they can continue to enjoy the fruits of investment,” he added.
Data shows that foreign institutional investors have turned net sellers of Indian equities in the last few months. Between October 2016 and January 2017, FIIs sold Indian shares worth ₹32,000 crore. They were, however, net buyers in 2016 at ₹20,568 crore.
Meanwhile, the Sensex pack saw 18 constituents gaining ground with stocks like Maruti, Mahindra & Mahindra, ITC, GAIL, Adani Ports, Tata Motors, Hero Motors, L&T, ICICI Bank and State Bank of India all gaining in the range of 3-5% each. The budget has provided ₹10,000 crore for recapitalisation of state owned banks in 2017-18.
While the budget delivered on all accounts, going forward, the focus will now shift on corporate quarterly results and global factors, said Kamlesh Rao, Managing Director, Kotak Securities.
