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Budget boom

Updated on: 14 July,2014 09:20 AM IST  | 
Arun Kejriwal |

The Arun Jaitley-Narendra Modi Union budget gave a huge boost to the Sensex with new highs being reached

Budget boom

The budget week was extremely volatile and the markets made new highs before correcting itself post the budget presentation. The intraweek highs on the BSESENSEX were 26,190 and 7,808 on the Nifty.

The common man has been hoping for good days to come with an economic revamp. Pic/Bipin Kokate
The common man has been hoping for good days to come with an economic revamp. Pic/Bipin Kokate

The markets had a huge sell off last Thursday post the budget when news of Portugal's top bank being in trouble came in. Friday saw huge selling by all quarters including FIIs. The reason for the selling is not clear but it could be profit booking and also some ambiguity in the budget.

Gainers and losers
The BSESENSEX lost a staggering 937.71 points or 3.61 per cent to close at 25,024.35 points while the Nifty lost 292 points or 3.77 per cent to close at 7459.60 points. The broader market lost more with the BSE100, BSE200 and BSE500 losing 4.50 per cent, 4.61 per cent and 4.79 per cent respectively.

The markets were trading high on Budget Day as Arun Jaitley presented the financial plan. Pics/AFP
The markets were trading high on Budget Day as Arun Jaitley presented the financial plan. Pics/AFP

There was mayhem in the midcap and smallcap space with the BSEMIDCAP down a whopping 7.02 per cent and BSESMALLCAP 7.80 per cent. In sectors the few gainers included BSEFMCG up 1.47 per cent and BSEIT up 0.73 per cent.

The losers were led by BSEPOWER down 10.16 per cent, BSECAPGOODS 9.98 per cent, BSEREALTY 9.18 per cent and BSEPSU 8.97 per cent. In individual stocks, the top gainers were Sun Pharma 4.51 per cent, ITC 3.83 per cent, Infosys 2.69 per cent and Hind Unilever 2.65 per cent. If there is one stock which has gained most from the budget or is the stock of Budget 2014, it is IDFC and the stock gained 10.75 per cent.

The rupee is expected to see new highs soon
The rupee is expected to see new highs soon

The losers were led by Power Finance down 15.41 per cent. Other double digit losers included Union Bank down 18.05 per cent, BHEL 15.01 per cent, Canara Bank 13.34 per cent, NMDC 12.43 per cent and SBI 10.26 per cent. The few men left standing in the carnage were form the FMCG, Pharma and IT sectors.

Was the budget responsible? Certainly not. At the CII special screening and viewing of the live budget almost all who spoke agreed that the budget considering the time and fiscal condition was excellent and was growth oriented. The people present believed that the government has a vision and wants to do things which will benefit the nation.

Some of the key features of the budget which would lead to growth include 100 smart cities and housing for all in the next seven to eight years. The investment allowance threshold limit being lowered to Rs 25 crores ensures that even MSME (Medium and Small Enterprises) can take advantage of this 15 per cent tax break.

Modi boost
Further with FDI set to increase in insurance and defence to 49 per cent, one should expect huge inflows into the country as well. For the individual, the move to a single KYC (Know Your Client) and a single demat account for all asset classes will simplify paper work to a great extent.

What spooked the market, was the probable and almost certain failure of the leading bank in Portugal, the buy the rumour and sell the fact adage post budget and finally some confusion on “Retrospective” changes in tax laws.

While the finance minister did mention that the same could be done only by a higher authority people felt that there is still a foot in the door stick of the government and the issue has not been resolved fully. With the Modi government being one where transparency is the key, one could be sure that sooner or later this issue would be ironed out.

IIP or Index of Industrial Production rose to a 19-month high of 4.7 per cent in May since October 2012. This augurs well for the economy and could be construed as one of the few signs of things turning around. The previous month’s numbers were at 3.4 per cent. In this week, inflation data both wholesale and consumer would be released with wholesale inflation data due on July 14 and consumer inflation due on July 18.

Global cues
Results season has kicked off with Infosys declaring results for the April-June quarter where its net profit at R 2,886 crores was down 3.5 per cent from the January-March quarter but up 21.6 per cent from the year ago quarter. With the budget out of the way, it would be results and global cues which would drive the markets going forward.

Markets have had a phenomenal run in the last 10-11 months with a peak gain of 40.66 per cent from 18,619 to 26,190 on the BSESENSEX. Similarly the gain was 42.71 per cent from 5,471 to 7,808 on the Nifty. These gains were from the end of August till last week.

The correction over the week has made markets healthy and the fizz has partially disappeared. While the markets may correct further, one thing is for sure the markets will see further gains as money comes into India under FDI and FII. The FII's have sold on Friday yet they made net purchases of R 2,362 crores for the last week while domestic institutions were almost neutral with net purchases of R 92 crores.

The budget is over and some clarifications will set the move for another rally. Results are the main driver and one should use dips in the market to enter all over again. The trend of the market is up and though there will always be corrections stay invested to make money in the long run.

Arun Kejriwal is founder of the Mumbai-based advisory firm Kejriwal Research & Investment Services Pvt Ltd. Readers are invited to read more about these and other issues on his website

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