Indian Markets Monday Wrap-Up: Budget Brings Gloom to the BSE

Not so content with the budget measures announced today, market participants reacted harshly by engaging in a mass sell-off. Just an hour before noon, the indices’ downward journey began and subsequently continued till the close. The Sensex ended the day lower by about 870 points (5.8%), while the NSE-Nifty closed lower by around 260 points (5.8%). Barring stocks from the FMCG sector, selling activity was witnessed across the board, led by stocks from the banking, realty and capital good spaces, whose respective indices were down in the range of 7% to 8%. The overall decline to advance ratio was stood at 3.5 to 1 on the BSE.

Most of the other Asian markets also ended the day on a weak note today. Stocks in Europe are also trading in the red currently. Rupee was trading at 48.49 against the US dollar at the time of writing.

Out of all the stocks that form part of the BSE-Sensex, only two - ITC and HUL - closed in the positive at the time of writing. The gains in ITC were mainly on account of the Finance Minister (FM) not tinkering with the taxes on cigarettes. That seemingly came as a relief for investors as the government in the past has been steadily increasing the excise duties, which have indirectly impacted volumes. Further, the FM has also kept excise duties on paper and paperboards unchanged at 4%. This will help the company reduce its cost. Further, the increased focus on rural India will help it increase revenues from these markets, which currently form around 20% to 25% of the company’s income.

The BSE-FMCG Index ended higher by about 0.9% today. This was mainly on account of the government’s focus on the aam aadmi. In today’s Budget, the government increased its allocation to the NREGS (National Rural Employment Guarantee Scheme) by 144% to Rs 391 bn for FY10. The NREGS focus on increasing employment through the NREGA (National Rural Employment Guarantee Act). Amongst other measures, it also took a measure of providing sufficient food security to BPL (below poverty line) families apart from allocating Rs 70 bn under Rajiv Gandhi Grameen Viduytikaran Yojana (RGGVY). The increased focus on rural markets through higher employment generation and infrastructure spending will improve rural income. It may be noted that rural India accounts for more than 40% consumption for major FMCG categories. Also the fact that FMCG companies are witnessing 40% annual growth in rural sales as against 25% in urban areas cannot be ignored.

The BSE-Oil and Gas Index ended the day lower by around 5.8%. In today’s Budget, the FM announced that the tax holiday under section 80-IB (9) of the Income Tax Act on the profits from production or refining of mineral oil, has been extended to natural gas. This will be available to blocks under the NELP-VIII round of bidding. It will also be retrospectively provided to existing blocks. This comes in as good news for upstream energy companies such as ONGC and RIL who are significant producers of natural gas and will now benefit from the tax exemption on production of natural gas in India. In addition, companies looking to enter into joint ventures with foreign energy majors for bidding in the forthcoming NELP rounds will find it easier to find partners. The list includes almost all the major oil and gas companies in India.