Dalal Street bets on 'reforms oriented' Budget

Markets are betting that Budget 2005 will further open up industrial sectors to foreign investments and rationalise taxation structure.

India's booming capital market is betting that Budget 2005-06 will further open up industrial sectors to foreign investments and rationalise the existing taxation structure.

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With a little over a week to go for the unveiling of the annual fiscal package, expectations of the Government carrying forward the reforms and growth agenda in the Budget are running high in the stock markets.

Finance Minister P Chidambaram will present the Budget for the fiscal year 2005-06 to Parliament on February 28.

"The general feeling on the bourses is the Budget will take the reforms process forward and create a framework for achieving higher growth rates," said equity market analyst with brokerage firm Pranav Securities, Sudhir Rao.

"The market is hoping that the Government will raise the foreign investment caps in sectors like real estate and retail, which in turn will trigger the demand for stocks of cement, steel and other related sector companies," Rao told IANS.

"There are also some taxation and structural issues that need to be addressed in the Budget for the increased flow of overseas investments as well as domestic retail participation inside the trading ring."

The stock market barometer 30-share Bombay Stock Exchange sensitive index or Sensex on Monday touched an all-time closing high of 6,679.33, bettering its previous record high of 6,679.29 logged on January 3.

Foreign institutional investors, who act as the backbone for the liquidity starved Indian capital market, have led the recovery on the domestic bourses.

Experts say the Budget's possible thrust on boosting the country's creaky infrastructure such as roads, ports and airports would come as a major positive boost for the market.

There are also hopes that income tax rates, both direct and indirect, will be rationalised in line with the recommendations of a high-powered committee appointed by the Government.

In the Budget for 2004-05, Harvard-educated lawyer-turned-politician Chidambaram had introduced a slew of stock market friendly tax initiatives that were aimed at enhancing the participation of small traders in the trading ring.

Chidambaram, who had become the darling of the market during his previous stint in the Finance Ministry from 1996 to 1998, abolished long-term capital gains tax and fixed short-term capital gains tax at a flat 10 per cent in last year's Budget.

"We hope that the Budget would continue the process of creating an enabling environment for increased flow of funds into the market, both from the foreign and domestic investors," said Neeraj Deewan of Quantum Securities.

"If the Budget manages to send a clear signal on the reforms and growth front, we may see another record year of overseas fund inflows into the domestic trading ring," added Deewan.

The stock market also hopes that the Government will continue with its privatisation programme by off-loading its holding through the initial public offering route.

The Government plans to sell part-stake in public sector Bharat Heavy Electricals Ltd (BHEL) and Maruti Udyog, the country's largest carmaker, in the next financial year beginning April 1.

On the negative side, investors fear that the Budget could see a hike in the securities transaction tax that was introduced last year and triggered massive selling pressure on the bourses.