Thumbs down by Sensex

It was the worst-ever budget-day for the stock market as the finance minister, Mr Pranab Mukherjee, disappointed investors with a Finance Bill that had no mention of the much-anticipated bold economic reforms programme, including relaxation in Foreign Direct Investment (FDI) regime and an aggressive divestment agenda.

Amid expectations of an investor-friendly budget, the benchmark Sensex opened higher by 49.07 points and gained 184.82 points immediately after the FM began his budget speech at 11 am. However, stocks began to slip and the index ended the day down by 869.65 points, or 5.83 per cent, as disillusioned investors started to offload positions as the budget speech unfolded.

The index went below the 14,000-level in closing minutes, before ending at 14,043.40 – down 869.65 points, or 5.83 per cent. National Stock Exchange’s Nifty closed at 4,165.70, down 5.84 per cent, or 258.55 points.

Today’s fall wiped off Rs 2,54,153.3 crore of investor wealth. The previous biggest fall on budget day was in 2000 when the Sensex fell 5.11 per cent. “Market fell because of selling by high net worth investors and retail investors. Institutional investors are not selling,” Manisha Girotra, head of UBS India, a leading Swiss bank, told Financial Chronicle.

“The budget is good for infrastructure. Some long-term growth issues have been paid attention to,” she said. Experts said high fiscal deficit of 6.8 per cent of GDP was a worrying factor for investors.

While removal of Fringe Benefit Tax (FBT) was welcome – the Sensex recovered by about 100 points immediately after the announcement – but no announcement on big ticket PSU share sale programme or removal of Securities Transaction Tax (STT) deterred investors.

Mark T. Robinson, CEO, Citi South Asia, said he was hopeful that the government would, in the near term, announce more elaborate policy measures on key issues like divestment, FDI and financial sector reform which are critical for building a strong economy. The Sensex was down by over 700 points, but it recovered by nearly 200 points, before a final sell-off just before the close of market pushed down the market.

“Market is overreacting. There is no negative in the budget. In fact, removal of FBT is a positive sign. In the run-up to the budget, the market was riding on over expectations. Now, the stock prices are coming back to realistic levels,” said Sanjay Sachdev, country-head of Shinsei Bank.

Banking, realty and capital goods were the worst hit. BSE Bankex (-8.17 per cent) declined the most, as the upward revision in borrowing requirement by Rs 90,000 crore will have adverse implications for interest rates. BSE Realty fell 7.28 per cent. Only two stocks on Sensex – ITC Ltd (up 3.13 per cent) and Hindustan Unilever (0.99 per cent) bucked the trend. All the indices except FMCG, which was marginally up, ended in negative territory.

“The next 30-60 days will offer good entry opportunity to investors, who have missed out on the earlier rally,” said Shinsei’s Sachdev. US brokerage Goldman Sachs said the central fiscal deficit is slated to increase to 6.8 per cent of GDP, higher than their expectations of 6.5 per cent. “The consolidated fiscal deficit may rise from 10.1 per cent of GDP in FY 2009 to 10.4 per cent of GDP in FY 2010,” said Tushar Poddar, vice-president, Goldman Sachs India.

“Although the deficit is higher than expected, Goldman Sachs does not think the financing of it will be difficult, even as we wait for more clarity on disinvestment and 3G auction proceeds. There were expectations of structural reforms —insurance, subsidies, divestment, foreign direct investment, most of them unreasonable, which were not met,” Poddar said.

“Overall, the market reacted negatively to the budget. For the capital market, there is no direct benefit, although the market expected removal of STT and dividend Distribution Tax,” said Motilal Oswal, CMD at Motilal Oswal Financial Services.