Post budget market reaction-Market Commentary Saturday, 27 Feb.'99
Anil:
Looks as though the market likes the new budget proposals by Sinha.
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(Source:CMOTS)
Yashwant Sinha's Status Quo Budget Cheers Stock Markets
The markets underwent huge swings in the first half of today's special budget session as Finance Minister Yashwant Sinha presented the Union Budget for 1999-2000 at 11.00 Hrs IST, departing from the usual practice of reading out the budget document at 17.00 Hrs IST. The Bombay Stock Exchange (BSE) closed trading with a 165-point jump in the Sensex.
Although the budget maintains a status quo on most issues, the markets appears to have welcomed Sinha's proposals. Stock prices, which were on a roller-coaster ride as the finance minister was unveiling the provisions, moved in one direction post-budget - up. This was in spite the fact that there were hardly any dramatic announcements or reduction in taxes. Nonetheless, players feel that the budget will help the economy in the long term. Players were particularly happy with the reduction in long-term capital gains on share transaction to 10% from the earlier 20%, and the exemption from tax on income from mutual funds and dividends of equity-linked savings schemes with an investment of more than 50% in equities.
The finance minister also doled out fiscal incentives to knowledge-based sectors like like Information technology (IT) and pharmaceuticals, as well as to the housing industry, which in turn is expected to boost related industries such as steel and cement.
The entertainment industry has also been given export benefits.
On the other hand, the Re 1 per litre of duty on diesel did not go down well. Players hammered automobile stocks, and so too refinery stocks, disappointed at any sops for the domestic industry. An additional 10% surcharge on corporate profits was also a bit of disappointment.
However, players feel that,overall, the budget is balanced in the given circumstances and will help spur economic growth.
The markets opened firm at 3301.13, as new settlement commenced on the BSE. The Sensex jumped to 3357 even as the finance minister was reading the budget document. However, following the hike in diesel prices and imposition of surcharge on corporate profits, sentiment weakened as operators hammered stocks across the board, pulling the Sensex to a low of 3215.69 as budget speech ended, at about 13.00 Hrs, one of the longest speeches by any finance minister in recent times.
But at this point fresh speculative activity emerged in software and pharmaceutical counters following a host of incentives to these sectors, and the Sensex recovered. Towards closing, the Sensex jumped to a high of 3400.19 and closed at 3399.63, gaining 165.77 points over its previous closing of 3233.86. The BSE 100-Share National Index (Natex) gained 71.86 points over its previous closing of 1435.09 to settle at 1506.95.
A number of scrips hit the upper limit of the circuit breaker. 'Those which did not, were trading close to the circuit breaker level,'noted a dealer on the BSE. The volumes on the BSE were unusually high at Rs 2040 cr. Counters like ITC, (Rs 264 cr), Pentafour Software (Rs 255 cr), Satyam Computers (Rs 163 cr) and Zee Telefilms (Rs 132 cr) witnessed huge volumes.Pivotals,too, improved. Reliance Industries, which had slipped sharply from a high of Rs 146 to Rs 134 as expectations of anti-dumping duties did not materialize, recovered towards the end and settled at Rs 144.60. As cigarettes were spared from a hike in excise, ITC improved sharply from Rs 775 to 836.75. Hindustan Lever moved up from Rs 1829.75 to 1950 before closing at Rs 1948.50. Software, FMCG and pharmaceutical counters,too, improved on fresh speculative purchases, and some of them hit the upper limits of the circuit breaker. Infosys Technologies jumped from Rs 2708 to a new high of Rs 2924.50, Satyam Computers jumped from Rs 920 to 993.50, Pentafour Software from Rs 803.50 to 867.25, Rolta India from Rs 102.70 to 110.90, DSQ Software from Rs 445 to 480.50, and Tata Infotech from Rs 1604.25 to 1732.50. NIIT became ex-bonus and jumped sharply to settle at Rs 1851.
In pharmaceutical stocks, Ranbaxy Laboratories jumped from 368.25 to 397.50, Nicholas Piramal from Rs 337.25 to 364, Dr Reddy's Lab from Rs 568 to 613.25, Wockhardt from Rs 305 to 329.25, Cipla from Rs 1099.50 to 1186.50, Glaxo from Rs 690 to 745, Novartis from Rs 882.50 to 953, Smithkline Pharma from Rs 527 to 569, Pfizer from Rs 951.75 to 1027.25, Parke Davis from Rs 360.50 to 389.25, Hoechst Marion Roussel from Rs 547.25 to 586.25, Rhone Poulenc from Rs 1171 to 1264.50, E Merck from Rs 552.50 to 596.50 and Knoll Pharma from Rs 559.25 to 603.75. Other pharma counters were also firm.
As the housing sector is expected to be a major benificiary of this year's budget, the Housing Development Finance Corporation hit the circuit breaker at Rs 2462.25. Export benefits accruing to the entertainment industry saw Zee Telefilms jump from Rs 662.25 to 715. On the other hand, refinery counters were hammered as the expectations of decontrol did not materialize. Selling pressure was reported on counters like BPCL, HPCL, Cochin Refinery, Madras Refinery and Reliance Petroleum.
The hike in the price of diesel resulted in automobile counters like Ashok Leyland, Tata Engineering and Mahindra & Mahindra (M & M) declining sharply. Some players feel that the budget has not brought anything major for industry. Hence, there is no reason for the market to react so positively. 'The market has reacted to the headlines and not the fine print of the budget proposals. The market may sober down a little on Monday when the facts are properly understood,' opined Ketan Desai, portfolio manager, Asit C Mehta Investment Intermediates. Says Vijay Pandya,a dealer on BSE,'I would certainly welcome a correction as the market has gone up by 160 points. This would ensure the steady performance of the stock market.'
Buying witnessed today seems to be more of speculative in nature than the delivery-based. FII reaction to the budget is yet to be seen by the market. The imposition of the surcharge on corporate tax is likely to affect the sentiment later. In the meanwhile, brokers advice to stay invested on MNC counters in pharmaceuticals and FMCG.
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