Indian shares gained the most in almost two-months as investors gave a thumbs-up to Finance Minister Arun Jaitley’s Union Budget. They were especially enthused that fears of a long-term capital gains tax on securities transactions didn’t come true.
Market sentiment also got a boost after Jaitley proposed to bring down the fiscal deficit target to 3.2 percent of GDP from 3.5 percent earlier.
The budget speech’s emphasis on fiscal prudence indicates that continued commitment to gradual fiscal consolidation remains. This is consistent with the target of a deficit at 3.2 percent of GDP this fiscal year, followed by 3 percent. These targets are not materially different from the previous roadmap and our projections.William Foster, Vice President, Sovereign Risk Group, Moody’s Investors Service.
The S&P BSE Sensex gained 1.7 percent, the most since October 18, while the NSE Nifty jumped 1.8 percent to 8,716. This was the 50-share index’s highest close since October 5 of last year.
The market breadth was firmly in favour of the bulls. About 1,161 stocks advanced, 444 declined and 303 remained unchanged on the NSE.
The Nifty, which kept moving in a tight range after the Budget was presented in Parliament, made a strong rally powered by budgetary proposals to infuse Rs 10,000 crore in public sector banks, no change for capital markets and allocating a record Rs 3.96 lakh crore to infrastructure sector as well as granting infra status to affordable housing.
Also, the proposal to further liberaise FDI policy too uplifted trading sentiment. Barring the Nifty IT and Nifty Pharma, all other nine sectoral gauges advanced.
Bond Yields Rise
Indian bond yields rose substantially fromthe day’s low and ended higher as investors deep-dived into the fineprint of the budget, which pegged the net market borrowing at Rs 4.23 lakh crore for FY18BE as compared to Rs 4.06 lakh crore for FY17RE.
Bond yields ended the day at 6.43 percent compared to Tuesday’s closing level of 6.40 percent. The yields touched a high and low of 6.45 percent and 6.37 percent respectively.
The FPI Boost
Seeking to assuage concerns of overseas investors, Jaitley announced relief for well-regulated foreign portfolio investors (FPIs) from tax liability arising out of sale of assets or shares in a foreign company due to redemption of an investment within India.
Apprehensions have been raised about some difficulties which arise because of this provision in case of transfer of stake of investors of India-based funds located abroad, but investing in India-based companies.”Arun Jaitley Finance Minister
Gautam Chhaochharia, head of research at UBS said foreign investors will now breathe a sigh of relief. He said a lot of their global clientele choose India for its macro stability. “Sticking to the fiscal consolidation road map will make sure that it sustains for a while at least.”