Stock markets did on Monday what they often do after budgets. They plunged, as expectations were belied on special measures that would attracted the fancy of market players.
While the reasons cited included a high fiscal deficit – which restrains the government’s spending power and reduces room for tax reliefs – there was also a lack of punch on pushing reforms forward, said some market players.
The Sensex, the benchmark Bombay Stock Exchange that symbolises the mood of traders if not investors plunged 869 points, or 5.8 per cent to close at 14,043 after Finance Minister Pranab Mukherjee presented a budget for 2009-10 that marked high spending to revive overall growth, but left no punch on issues like disinvestments or sector-specific incentives.
The index which started the day up, fell sharply within a few minutes of the finance minister starting his budget speech. The National Stock Exchange’s Nifty also fell 5.8 per cent to end the day at 4,156, down 258 points.
“The market always overreacts, be it good news or bad. This time the market had high expectations which was not met and so it tanked,” said Motilal Oswal, chairman and managing director of Motilal Oswal Securities Ltd.
Oswal said that the budget addressed macro issues while micro things were missing. “The budget was more policy related and took no call on FDI (foreign direct investment), divestment etc. However, the positive was the aim at 9 per cent growth,” he said.
“The Finance Minister did not use this as platform of roadmap for reforms, which the market expected,” said Navneet Munot, chief investment officer of SBI Mutual Fund.
According to market players, negatives of the Budget are — the projected 6.8 per cent fiscal deficit and increase in Minimum Alternate Tax rate for companies. They said that abolition of Fringe Benefit Tax and Security Transaction Tax were welcome.
“The budget was silent on the timeline for tackling the fiscal deficit position of the country, and the reforms process announcements expected from it, which would have aided in handling the fiscal situation of the government,” said Dinesh Thakkar, chairman and managing director of Angel Broking.
Though disappointed, experts are unanimous that government’s efforts will continue outside the Budget also and will help improve Corporate India’s earnings going forward. “An announcement on the Fiscal Responsibility and Budget Management (FRBM) rule is to come by October. We would have to wait and watch,” said Munot.
“The government has made effort to put more money in infrastructure and rural economy. Eighty per cent of India’s population stays in rural areas and this could be a move to generate higher demand,” said Oswal.
Jaideep Bhattacharya, chief marketing officer of UTI Mutual Fund said, “The budget is pragmatic as it gives power in the hands of people,” apparently referring to spending for the rural and urban poor.
“This is also a good time for investors to enter markets as they have corrected following the budget,” said Bhattacharya. “I hear that lot of DIIs are actually buying,” he added.