Despite jitters, thumbs up from the market

The good news is that the FM did not raise taxes or conjure up new and esoteric levies; he merely extended the service tax net to newer sectors. The accent was on fiscal prudence, deficit containment and impetus for long-term growth through rural empowerment, infrastructure development, food processing, agricultural growth, farm credit expansion and education.

When these measures translate into higher economic growth, it would further increase market buoyancy.

Rationalisation of customs and excise duties across a swathe of industries added another positive dimension to the Budget, causing a spike in several scrips. Maruti Udyog and Tata Motors rallied on news of excise concessions for small cars, while scrips of man-made fibre companies shot up significantly on the announcement of duty cuts.

8220;The boost to tourism saw a spurt in hotel scrips. Infrastructure, power and cement companies were other beneficiaries along with tea plantation companies where the budget provided funding for massive replanting exercise.

The FM clearly had his constraints in framing the budget and this was reflected in the careful avoidance of all potentially controversial areas that would have led to political bickering and turbulent capital markets. The speech simply did not allude to FDI especially in retail, Privatisation or Disinvestment or the Sixth Pay Commission that was announced by the PM.

There was some disappointment over the absence of action on the C. Rangarajan Committee report on the petroleum sector.

As regards issues specific to the capital market, a 25 per cent increase in Securities Transaction Tax STT was expected and with the Sensex trading above 10,300 it predictably did not even cause a ripple. A ferocious bull market is the perfect time to raise the STT and high trading volumes in the cash and derivatives segment indicate that it will make a handsome contribution to the FM8217;s tax kitty.

Two significant announcements ended a long phase of wrangling between the capital market regulator and the Reserve Bank of India RBI. First, the FM has decided that corporate bonds will be traded through a single, unified exchange-traded market.

At the same time, the RBI8217;s Negotiated Dealing System NDS, which started as a closed club of its own regulated entities has been further opened. In the first phase, the NDS permitted entry to insurance entities, the FM has now pushed open its doors to mutual funds, pension funds and provident funds.

FII investment limit has also been raised in both segments; in Government securities is up from 1.75 billion to 2 billion, and in corporate debt, from 0.5 billion to 1.5 billion.

Mutual funds have also been allowed to double their overseas instruments from 1 billion to 2 billion and the condition of 10 per cent reciprocal share holding has been scrapped.