Markets This Week
While starting off at a slow pace, the equity markets of India ended on a sensational note thanks to the announcement of the Union Budget 2015-16. It was an extended week with trading been allowed on Saturday as well. The week started with profit booking on Monday and apprehension rife on account of major annual events including the Railway Budget, the Economic Survey, and the Union Budget. However, all apprehensions quickly turned into good cheer.
The 50 share CNX Nifty of the NSE closed at 8901.85 points – a gain of about 0.7 percent or 68.25 points (over last week’s closing 8,833.60 points). Similarly the BSE’s benchmark index, the 30-share Sensex closed the week at 29,361.50 points – up about 130.1 points or 0.4 percent (over last week’s closing 29,231.41 points). Axis Bank, Kotak Mahindra Bank, NTPC, L&T, ICICI Bank, and IndusInd Bank were among the top gainers at the Nifty in this week’s trade while ITC, Tata Steel, BHEL, and Zee Entertainment were among the top losers of the index. Reduction in corporate tax, announced in the Union Budget kept India Inc. happy. The Railway Minister’s promise to invest about INR 8.5 lakh crore over the next 5 years buoyed sentiments.
ITC tanked about eight percent following a hike in excise duty on cigarettes (by about 15 percent). The ITC share opened Saturday’s trading session at about 393 but closed at 361.25 after having hit a high of 409.70 (BSE). Excise duty on footwear priced over INR 1,000 was cut down from 12 percent to six percent sending the share prices of Bata India, Relaxo footwear, and Liberty shoes bounding up at the indices.
Finance Minister Presents Union Budget 2015-16; Elicits Mixed Responses
On 28 February, Finance Minister Mr. Arun Jaitley presented the NaMo administration’s first full-year budget, which focussed on administrative and economic reforms, creation of jobs, and boosting growth. The fiscal deficit target for FY 16 has been set at 3.9 percent. The budget emphasised on strengthening the country’s infrastructure, along with investments and manufacturing. It also increased defence allocation by about 11 percent bringing it up to INR 2,46,727 crore.
Though the budget did not make any change in existing tab slabs for the individual taxpayer, it did increase the tax deductions limits for health insurance premium, on contributions made towards pension schemes and increased the transport allowance, taking up the total benefits to about INR 4, 44,200. It also included contributions made towards the Sukanya Samridhi scheme, Swachch Bharat and Clean Ganga schemes within tax exemptions. Corporate tax will also be reduced to 25 percent over the next four years. The Finance Minister also announced stringent tax laws and severe punishment for defaulters.
Though the budget retains a firm focus on growth, development and long-term stability, it has attracted some measure of criticism from tax payers who expected additional sops. Corporate India seems to be pleased, though, with equity markets reacting positively to the budget.
Economic Survey Optimistic About India’s Fiscal Prospects
Right ahead of the budget, the Economic Survey presented to the Parliament revealed that India is well on its way to economic recovery. The report was presented by the Finance Minister Mr. Arun Jaitley. It said that the nation’s growth trajectory was optimistic with the economic growth estimated to be between 8 and 8.15 percent in FY 2015-16. The growth could reach a double digit figure within a couple of years, it said. “India has reached a sweet spot—rare in the history of nations—in which it could be launched on a double digit medium-term growth trajectory”, said the report.
The other indicators of the nation’s economy, according to the report, are not quite as pleasing as the GDP data. This last quarter, the top 100 companies of the nation saw a 6 percent shrink in earnings. Manufacturing, too, is weak while exports of merchandise are shrinking. Consumer demand could well do with a big boost. Retail investment also has been very weak. The report suggests that India is a recovering economy but not a surging one yet, said India’s Chief Economic Adviser, Mr. Arvind Subramanian.
Gold Monetization Policy Introduced
The bullion is up for some exciting times ahead, going by the announcements made by the Finance Minister in the Union Budget. The government plans to introduce gold deposit accounts to tap into and utilise the immense gold reserves lying idle in the country. It is estimated that about 20,000 tonnes of gold remain unutilized with the people and yet we continue to import about 800-1,000 tonnes of gold per annum. With the introduction of the account, depositors are likely to earn interest on their gold deposits and the government may also launch a sovereign gold bond. Jaitley also announced the government’s intentions to produce Ashok Chakra bearing gold bonds in the country to curb the import of gold coins.
Disappointing the jewellers, the government has decided to peg the gold import duty at a record 10 percent. While this is likely to send up gold prices across the nation, fears are that it may also trigger an unprecedented level of gold smuggling into India. About 175 tonnes of gold was smuggled into India in 2014, estimates say. It is likely that this year’s reading will be considerably higher.
