The budget has come and gone by. There has been a very strong rally post budget which saw the BSESENSEX gaining 785 points or 4.44% to close at 18,486.45 points and the NSENIFTY gaining 235.20 points or 4.43% to close at 5,538.75 points. The rally would be attributed to the budget and if there was one single factor which contributed to the same it was the fact that excise duty rollback which was on the cards did not happen. This was good news and the market lapped it up with thumbs up. The rally gained momentum on Tuesday and the SENSEX gained a staggering 623 points the next day.

Some of the salient features of the budget are as follows: –

• Increase in tax exemption limit from Rs1.60 lakh to Rs 1.80 lakh
• Creation of a new Very Senior Citizen category of age 80 and above with tax exemption of Rs 5 lakh
• Lowering the existing senior citizen age group from 65 to 60 and increase in tax exemption limit to Rs 2.5 lakh from 2.4 lakh
• Corporate surcharge has been reduced from 7.5 per cent to 5 per cent but Minimum Alternate Tax (MAT) has been increased to 18.5 per cent from 18 per cent.
  Developers of SEZ would have to pay MAT.
• Excise duty of 10 per cent levied on branded garments
• New services brought under service tax which include healthcare with some exemptions
• Air-conditioned restaurants serving alcohol to attract service tax
• Hotels charging Rs 1,500 or more per day to attract service tax
• Higher allocation on education, NREGA and Bharat Nirman programmes
• Farmers to receive higher loans and prompt repayment to be rewarded by lower interest rates
• Impetus for creating warehouses, food cold chains and processing centres
• Divestment of public sector companies to yield Rs 40,000 crore in 2011-12

All these measures are more or less adjusted in revenue terms with there being a net revenue loss of Rs 200 crs to the Central Government.

Five states go to the polls in April and May and the government could not be seen to be taking measures which were seen as against the common man. There is concern that the amounts provides as subsidies for petroleum products, fertilisers and food are substantially on the lower side and would have to be provided with additional grants at some point of time. Secondly the Finance Minister has assumed that companies would continue to perform well and the corporate tax collects would be robust. There seems to be a pressure on the performance of companies and this is likely to affect the tax collections.

On the positive side the roadmap for DTC is becoming clearer and in all probability it would certainly be introduced in 2013 if not 2012.

There is a huge protest that is happening on the imposition of excise duty on the branded garment side and already shutdown by various industry groups have happened. Even on the healthcare the move to impose service tax has been criticised and may have to be rolled back. Any changes to the present budget would increase the deficit and certainly affect the fine balance which the FM has brought about. In a matter of speaking he has tried to match the two sides as we analysts do on an Excel Sheet and just about balanced it. The high inflation is not helping matters and if the current oil prices are any indication the fiscal deficit would certainly get affected.

Diesel prices with elections in five states are unlikely to be changed significantly in the next two months and this could affect the deficit significantly. This increase in deficit could also affect interest rates and with many banks looking to raise money through bonds after the spectacular success of the SBI Bond issue, this route could be an interesting option for retail investors to make money in 2011-12.

The markets are likely to consolidate this week after the spectacular rally last week and closely track global cues particularly the MENA (Middle East North Africa) crisis.