The week gone by consisted of two distinct phases with the first four days of trading forming the first half and Friday, the day that the budget was presented forming the second half. Markets gained on all four trading days of the first half including expiry of futures for June series. It fell on Friday post the budget on expected lines. BSESENSEX gained 118.75 points or 0.30% to close at 39,5163.39 points while NIFTY was up 22.30 points or 0.19% to close at 11,811.15 points. The broader indices saw BSE100, BSE200 and BSE500 gain 0.14%, 0.06% and flat respectively. BSEMIDCAP was down 0.56% while BSESMALLCAP was down 0.68%. This was for the whole week with BSESENSEX losing 395 points on Friday and NIFTY losing 135 points on account of budget. The Indian Rupee gained 60 paisa or 0.87% to close at Rs 68.42 to the dollar. June series futures expired flat with a gain of 0.85 points at 11,946.75 points. Dow Jones had a decent week and gained 322.16 points or 1.21% to close at 26,922.12 points. Shares of Indiamart Intermesh Limited listed and registered gains of Rs 353.25 or 36.31% to close at Rs 1,326.25.
Coming to the budget presented by India’s first full time Lady Finance Minister Nirmala Sitharaman, it clearly passed the muster in delivering the message of continuity and taking the nation forward. There were no major surprises whether pleasant or unpleasant and it has broadly laid out the government’s desire to be a 5 trillion economy in the next five years.
Some of the key features of the same affecting the market could be enumerated below.
– STT or Securities Transaction tax on options would now be levied on the difference between the strike price and the market price. This will be a big relief for option traders and the cost of same would reduce, increasing volumes.
– A tax of 20% plus surcharge has been levied on buyback of shares by listed entities with immediate effect. This would result in the tenderer of shares getting back the amount tax deducted. This effectively means that in the current year the divestment proceeds targeted by the government of Rs 1.05 lakh crs would be bereft of buybacks. Also, the spate of buybacks that were witnessed on account of it being a more tax efficient way of rewarding shareholders would no longer exist.
– The government has recommended to SEBI that the minimum public shareholding in listed entities be increased from the present 25% to 35%. While this is a recommendation and would take a year or thereabouts to be formalised if accepted, it implies a three-year roadmap thereafter and would entail roughly Rs 4 lac crs fresh paper hitting the markets. Some MNC’s may choose to delist instead of diluting. This would help investors getting quality paper without valuations going up. Further this would also ensure that the primary market valuations would be reasonable as these issuers would be competing with the listed entities offering shares through the OFS route.
– Customs duties have been imposed or increased on consumer durables like tiles, marble slabs, split air conditioners and optic fibre cables amongst others. This is good news for the manufacturers of these products as any undue pressure on margin would reduce and there would be a boost for Make in India. It’s a different story that stocks of these companies actually fell in trading on Friday. There rebound in the coming week is a certainty.
– The customs duty on gold and silver has been raised. This is negative for the jewellery sector in the short term only. The real negative for this sector is that there would be a bigger incentive for smuggling as the differential at 12.5% makes it attractive for smugglers to make an attempt at smuggling.
– The issue of NBFC has been tackled with PSU banks being encouraged to buy quality paper of NBFC’s and the government providing an insurance of 10% for six months on diminution in value of the same. Further the housing finance NBFC’s are being brought under the ambit of RBI.
– PSU banks would be given Rs 70,000 crs for recapitalising during the year. Further after the mega-merger of Bank of Baroda with Dena Bank and Vijaya Bank, another one or two mergers in the current year are on the anvil. This will reduce the number of banks and also make them that much stronger.
– Focus to be given on ETF’s and one on financial services to be introduced on PSU’s. Government to focus on them for divestment looking at the success last year of CPSE ETF and Bharat 22.
– Affordable housing given a boost with further interest deduction on buying first home. This will go a long way in helping realty space in tier 2 and tier 3 towns.
– The decision of the government to borrow in foreign currency through sovereign bonds will help the country in getting money for long term requirement of infrastructure spending at cheaper rates without affecting the local bond market. Bond yields have softened on this news over the last two days. The longer-term effect would be a stronger currency and an opportunity for foreigners/foreign institutions to invest in India without the currency risk.
– Shares of ITC recovered after a fall on imposition of excise duty. The imposition of Rs 5 per 1000 cigarettes and Rs 10 per 1000 cigarettes depending on the length was introduced to care od structural issues and brings it on par with other tobacco related products.
– The biggest fear haunting the markets this time was inheritance tax and there was no mention about the same. Without doubt marketmen would heave a sigh of relief at that.
The Finance Minister has announced a massive drive to upgrade rural roads with an outlay of 80,000 crs over the next five years. Similarly, a scheme for infrastructure involving roads and railways would be stepped up on the PPP model with private partnership playing a key role in the development.
The surcharge on income above Rs 2 crs and Rs 5 crs has been raised while all other slabs have been kept unchanged. While this would impact a fraction of a percentage of India’s taxpayers this would help the government not tax the larger population.
If one looks at the budget as a whole and not piece by piece it is balanced and lays the roadmap for India becoming or moving towards a 5 trillion economy in the next five years. The fact that fiscal deficit has been maintained at similar levels and welfare continues shows that the government is confident of raising resources due to better compliance.
Fine print of the budget would continue to emerge over the coming week, but it appears that losses of 395 points on the BSESENSEX and 135 points on NIFTY suffered on Friday, the day the budget was presented would certainly be made up in the coming week. The focus of the market would now shift to quarterly results with TCS announcing them on Tuesday 9th July followed by Infosys on Friday 12th July. The growth in corporate performance is imperative as the same as been eluding markets for just too many quarters. Buy select PSU stocks and look for surprises in the results to build a portfolio.
