India: the 2015 Budget and the Stock Market

India the 2015 Budget and the Stock MarketIntroductionThe Union Budget 2015-16 was presented by Finance parson A stay Jaitley on 28th February and was a noblely anticipated event for all sections of the Indian society. It was the first budget of the newly formed Government under the leadership of Prime see Nargonndra Modi. The organization was formed with full take hold from the people of India, who considered P.M. Narendra Modi to be a wobble agent with the widely publicized campaign pang Din Aane Waale hain.The BJP led campaign received widespread support not only from the masses but also from the incorporated and job market watchers. The stock market was not performing well since the last few years due to loss of investor sentiments, crushed return on investments and badly performing shares crossways sectors. On the day of the election result foreshadowment, the stock market shot up to higher levels. This created widespread cheer among the investors and the corporate. They surely wished that better days are coming ahead. Hence the Budget was highly awaited by the business houses and the stock market players with a positive outlook, against the economic backdrop of a still-nascent retrieval in the economy.The stock market response to the budget is often viewed as an important summary statistic of the quality of the budget in terms of improving the macroeconomic prospects of the country.Expectation of Stock MarketsFuelled by hopes and expectations, the stock market opened higher on the Budget morning. The experts were predicting a volatile market and it sure did not disappoint. only if like any other day, trading started at 915ISTand concluded at 1530 IST.Analysts were ready to scrutinize measures in the Budget for financial support root projects as well as the governments own capital expenditure on base of operations for the year ahead. This was the first full fledged Budget of theNarendra Modigovernment and analysts looked for a roadmap for economic growth for the next few years.Before the Budget DayIndian stocks surged on 27 February 2015 after(prenominal) the Economic Survey 2014-15 tabled in parliament by Finance Minister Arun Jaitley stated that the government remains committed to fiscal consolidation and said that there is a scope for wide-ranging Bang economic reforms.Foreign portfolio investors (FPIs) bought shares worth a net Rs 1957.10 crore on 27 February, as per provisional data. Domestic institutional investors (DIIs) sold shares worth a net Rs 491.93 crore on 27 February, as per provisional data.On the Budget DayThe benchmark index, Bombay Stock Exchange (BSE) Sensex, opened at 29,411.33 points.The Sensex, which was trading with a gain of over 200 points before Finance Minister Arun Jaitley began his much-awaited Budget speech, swung in the midst of positive and negative terrain as he announced different measures.However, as the budget speech got under way, volatility set in and at 1159am, markets slipp ed into the red. After some seesawing through the day, the markets closed with gains, with the equity benchmark Sensex adding 141.38 points or 0.48%., and closed at 29,361.50 points. It raised 141.38 points higher on promise of lower corporate tax rates logging the first rise on a Budget day in four years. In the previous three sessions on Budget 2014, 2013 and 2012, the Sensex had ended lower.However, the difference between the days high and low was 678.3 points.The best performing sector of the day was BSE beachex, which gained 3.27%, followed by BSE Healthcare at 2.03%. Meanwhile, the worst performing sector was BSE FMCG which fell 4.09%, followed by BSE Consumer Durables, which fell 2.05%.The broader National Stock Exchange (NSE) index Nifty also moved up by 57.25 points to end the week at 8,901.85, after hovering between 8,751.35 and 8941.10.To better understand the effect of the Budget on the Stock Market and across the various sectors and companies listed in the Sensex, it is better to understand the major points mentioned in the budget which led to such widespread reactions.Budget HighlightsFinance Minister Arun Jaitley announced a budget aimed at high growth, saying the pace of slice the fiscal deficit would slow as he seeks to boost investment and ensure that ordinary people benefit. Mentioning below some of the major highlights from the Budgetfiscal deficit seen at 3.9 percent of GDP in 2015/16. Will meet the challenging fiscal target of 4.1 percent of GDP.GDP growth seen at between 8 percent and 8.5 percent.Expects consumer pretentiousness to remain close to 5 percent by March, opening room for more monetary indemnity easing.Market Reforms draw a bead on to merge commodities regulator with SEBITo bring a new bankruptcy codeThey plan to amend the RBI act this year, and provide for a monetary policy committeeTo set up public debt management agencyProposes to introduce a public contract resolution of disputes bill.To establish an autonomous bank scorecard bureau to improve management of public sector banks.InflationMonetary policy framework agreement with the RBI clearly states objective of keeping inflation below 6 percentGENERAL ANTI-AVOIDANCE RULES (GAAR)Government defers rollout of anti-tax avoidance rules GAAR by two years. It is ananti-tax avoidanceregulation ofIndia. GAAR to apply prospectively from April 1, 2017.Retrospective tax supply will be avoided. It was considered controversial because it had provisions to seek taxes from past overseas deals involving local assets retrospectively.TaxationMajor highlights wereTo abolish wealth taxReplaces wealth tax with additional 2 pct soak on super richProposed to cut to 25 percent corporate tax over next four years as they consider that corporate tax of 30 percent is uncompetitiveFM proposed modification of permanent establishment norms so that the mere presence of a fund manager in India would not constitute a permanent establishment of the offshore fund, resulting in adverse tax consequences.Extends withholding tax concession on foreign debt purchases by two yearsExpects to implement goods and services tax by April 2016To reduce custom duty on 22 itemsInfrastructureInvestment in infrastructure will go up by 700 billion rupees in 2015-16 over last year. It plans to set up national investment infrastructure fund. It also proposes untaxed infrastructure bonds for projects in roads, rail and irrigation project.InvestmentsIt proposed to do away with different types of foreign investment caps and replace them with composite caps to allow foreign investment in option investment fundsStock Market ReactionsPositive Reactions the Companies/Sectors BenefittedThe Union Budget 2015-16 presented by Arun Jaitley on Saturday is widely considered a good Budget. It announced many measures that cheered the prevalent man and even industry bodies. India Inc was happy with the budget with most calling it a pro-reform and a positive budget.The lower corporate ta x tied with less exemptions was accepted to simplify the tax structure and promote investment. Sentiments were lifted after FM announced a cut in corporate tax by 5 per cent to 25 per cent over four years starting April 2016.The governments focus on investment in the infrastructure sector was also viewed positively by the market In order to boost infrastructure spending, the finance minister proposed to reintroduce tax-free bonds. These are secured, redeemable, non-convertible debentures issued by government entities to mobilize funds needed for infrastructure development. This should help attract savings looking for stable long-term risk-free return. Among other measures, foreign investors bring forth been allowed to invest in alternate investment funds.Besides, the proposal to defer applicability of General Anti-Avoidance Act (GAAR) by two years, April 1, 2017, also boosted buying.Among the 30 Sensex scrips, Axis Bank topped the gainers by surging 8.1 per cent. Governments initi ative to bring in a Comprehensive Bankruptcy code for the tranquilize of doing business by 2015-16 is a declamatory welcome step from the banking sector perspective.Stocks in banking, healthcare, auto, oil and gas and IT rose. Major Sensex gainers were Tata Motors, ICICI Bank, Dr Reddy, Hindustan Unilever, Cipla, GAIL, Tata Steel, HDFC Bank, Infosys, RIL and MM. They gained between 1-3 per cent.Meanwhile, foreigners bought shares worth a net Rs 1,957.10 crore on the day.Says KPMG India CEO Richard Rekhy The Finance Minister has come out with a pragmatic Budget which is directionally focused at achieving growth and keeping the fiscal prudence in mind. The focus is on ease of doing business in India and increase infrastructure spend. Measures like New Bankruptcy legislation, startup entrepreneurs funds, GST rollout by FY 2016, deferral of GAAR will definitely support the cause of ease of doing business in India.Negative Reactions the Sectors/Companies ImpactedMedia companiesCompani es in the media space like PVR, Eros, Dish TV and Hathaway could be affected by the change in service tax rules. Now, the entertainment sector would be brought under the service tax net.Metal and mining stocks The Budget announced two measures that could presently relate metals and mining companies like Hindalco, Sesa Sterlite and Kalyani the increase in clean energy cess on coal to Rs 200/tonne from Rs 100/tonne, and the hike in rudimentary custom duty on metallurgical coke to 5% from 2.5% earlier.PSU banks The public-sector banks like PNB, Bank of India, Syndicate Bank and Dena Bank are heavily dependent on government finances.The Budget announced that the government will infuse Rs 7940 crore in PSU banks in the next fiscal. The Budget indicated the setup of a Holding Company for PSU banks, which would develop them more freedom and control. It also indicated that PSU banks could issue more stocks in the market. This will help them raise money by themselves, thus lowering thei r dependency on government capital.ITC, Cigarettes Industries The government usually reduces taxes for essential goods and increases tax burden on goods which are not essential and/or harmful. One such product which sees high taxation is cigarettes. The Budget further increased tax burden by hiking excise duty in certain cigarette products by 25% and 15%. This would make the cigarettes costlier from April 2015. Any rise in price negatively impacts demand and thus corporate profits. Shares of cigarette major ITC fell 8 per cent succeeding(a) the Budget proposal to increase excise duty on cigarettes.The government came down heavily on smokers and tobacco consumers in Budget 2015-16 with a take up increase in excise duty.Citing need for promotion of public health, Finance Minister Arun Jaitley on Saturday said Excise duty on cigarettes is being increased by 25 percent for cigarettes of length not exceeding 65 mm and by 15 percent for cigarettes of other lengths. Similar increases are proposed on cigars, cheroots and cigarillos.Plastic Industries The government wants to deter plastic consumption to reduce its harmful effects on the environment. For this reason, the Budget increased excise duty from 12% to 18% on plastic products (polymers). This would make plastic products costly.ConclusionBudget 2015 operates on some clear themes, and Government explains not just the challenges it faces but also the rouge ideas it is banking on. Declining agricultural income, the need for increasing investment in infrastructure, the need to remain on the fiscal consolidation path, a perceptible decline in manufacturing and the impact of the greater devolution of taxes to states have been highlighted in this Budget as the major challenges.This Budget was expected to be a Big Bang Budget. It was expected to announce a slew of reforms to get India back on the growth path. While the Budget did announce small-scale reforms for the industries, it did not mention any big reforms. As a result, market benchmarks Nifty, Sensex slipped back into the red after the Budget speech. They were earlier up 1% because of the deferral of GAAR and a cut in corporate tax by 5%.Overall, Budget 2015 shows the Governments commitment towards increasing competitiveness of the Indian economy while managing the expectation of domestic corporate and the common man too. The sure test lies in how efficiently the new government would be able to execute the ambitious proposals brought forth in Budget 2015 and how it helps in the bull run of the Stock Markets.ReferencesThe Hindu Union Budget Livehttp//www.thehindu.com/business/budget/live-union-budget-2015/article6944394.eceBusiness Today Stock Market Sensex on 28th Februaryhttp//businesstoday.intoday.in/story/stock-market-bse-sensex-nse-nifty-union-budget-2015-16/1/216277.html