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Volatile markets disappointed over retro tax, no major reforms

Sensex ends 72 points down after witnessing a roller-coaster ride; Nifty also eased by 17.25 points.

By: ENS Economic Bureau | Mumbai | Published: July 11, 2014 1:20:10 am

It was not smooth sailing for the stock market which was waiting for big bang reforms and ideas from finance minister Arun Jaitley. Stock markets staged a roller-coaster ride with the Sensex and Nifty moving up and down after the NDA government’s first Budget provided mixed signals. While the markets generally cheered the tax sops and the opening up of insurance and defence manufacturing for FDI, there was disappointment on the issues of retrospective taxation.

The Sensex, which fell 548 points from the day’s high, closed 72 points lower after an intra-day swing of over 800 points with negative news from abroad adding to the bearish trend.

The market was trading steady till Jaitley started reading his Budget speech. The Sensex plunged over 300 points at noon when it became clear that the government has not repealed the dreaded retrospective tax proposal. However, the market recovered the lost ground and the Sensex soared over 475 points to hit day’s high of 25,920.46 when Jaitley announced income tax benefits. Proposals like the hike in personal income tax limit from Rs 2 lakh to Rs 2.5 lakh, hike in 80C exemption limit from Rs one lakh to Rs 1.5 lakh and the increase in exemption limit for the interest component on housing loans were cheered by the markets.

However, the Sensex erased gains and settled at 25,372.75 when the market realised the Budget has not made proposals to tackle the subsidy burden. The wide-based 50-issue CNX Nifty of the NSE also eased by 17.25 points to end at 7,567.75.

Rakesh Goyal, Senior Vice-President, Bonanza Portfolio, said, “As expected, the new government didn’t come up with any big-bang changes to what was introduced in the Interim Budget by the UPA government. However, markets are disappointed on the fiscal consolidation front. The Budget didn’t say anything about the rationalisation of subsidies which was widely expected by most market players. ”

However, Arvind Sethi, MD and CEO, Tata Asset Management, said, “The correction in market in the last leg of trading session was more on account of global news flow about a possible default by a big Portuguese bank and it has nothing to do with Budget announcements. Our first impression is that it is more a directional statement on the government’s agenda and clearly links to BJP’s manifesto.”

Noteworthy positives include sticking to the challenging fiscal deficit target of 3 per cent by FY17, hiking FDI limit in insurance and defence sectors, providing incentives to REIT and long-term infrastructure loans.

However, Fitch Rating Asia-Pacific sovereigns group head Andrew Colquhoun said, “The overarching point of the Budget announcement is that the rhetoric and targets are credit constructive in many areas, including returning to 7 to 8 per cent growth and achieving budget deficit reduction (of 4.1 per cent this fiscal and 3.6 per cent next). However, implementation will be key.”

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