The stock market reacted sharply to the budget proposals,with Sensex tanking over 1 percent or 210 points,despite a slew of pro-investor measures announced by the finance minister.
The proposal to introduce the Rajiv Gandhi Equity Saving Scheme,reducing STT and introduction of electronic platform for the IPO subscriptions will lead to increased participation from retail investors,according to analysts.
The market was quite volatile. Earlier in the session,the Sensex had gone up by nearly 200 points but eventually it closed 210 points down at 17,466.20.
Analysts said the market actually can heave a sigh of relief given that the Budget did not propose any measure that would affect the investor sentiment.
“The Budget has several proposals to develop the capital markets and enhance retail participation such as introduction of the Rajiv Gandhi Equity Saving Scheme,reduction in STT and introduction of electronic platform for IPO subscription. We welcome these proposals and reinstate our commitment towards broad-basing and deepening the investor base,” MCX-SX managing director and chief executive Joseph Massey said.
ICICI Securities managing director and chief executive Anup Bagchi said the Budget is an honest attempt at balancing ground realities with continued focus on fiscal consolidation.
“The fiscal deficit target of 5.1 percent and full rollback of impetus during 2008 global crisis by hiking excise duty and service tax will help in achieving it and appears highly achievable. The reduction in customs duty for import of coal,LNG and capital equipment along with hiking allocation to the road sector have to a certain extent taken care of some of the concerns faced by infra sector,” he said.
Angel Broking chairman and managing director Dinesh Thakkar said the markets should be satisfied with the Budget,as it is broadly in line with expectations and did not contain any negative surprises.
The finance minister has delivered a pragmatic Budget this time around,biting the bullet on increasing tax revenues and not indulging in new populist schemes,” Thakkar said.
Having taken the Budget into its stride,in the coming months,in my view,the markets should continue their positive momentum,on the back of moderating inflation and interest rates as well as a significantly improved global environment,he added.
Broking firm Nirmal Bang’s director Kishore Bang said the volatility in the market may come down in the coming days on the back of increased investor participation.
Presently,there are less than 2.5 crore demat accounts accounting for around 2 percent of the population. The new scheme envisages an income tax deduction of 50 percent to retail investors,who invest up to Rs 50,000 directly in equities. Since the upper limit of annual income is less than Rs 10 lakh to claim this benefit,it covers a significant portion of the tax-paying population. This should provide significant impetus for an individual who is not in the markets,as of now,to enter the capital markets,he said.
Bang further said this should not only reduce the volatility in stock prices but pave way for distributed and strong holding of equity shares considering the lock-in period of three years.
The announcement is important considering the fact that the household savings deployed in equity capital markets has come down sharply,he observed.