A quick recap of the week gone by saw BSESENSEX gain 118.75 points or 0.30 per cent to close at 39,5163.39 points while NIFTY was up 22.30 points or 0.19 per cent to close at 11,811.15 points. The broader indices saw BSE100, BSE200 and BSE500 gain 0.14 per cent, 0.06 per cent and flat respectively. BSEMIDCAP was down 0.56 per cent while BSESMALLCAP was down 0.68 per cent. The indices had gained on the first four days of trading and lost on the presentation of the budget. What was heartening was the fact that the Indian Rupee gained 60 paisa or 0.87 per cent to close at Rs 68.42 to the dollar. June series futures expired flat with a gain of 0.85 points at 11,946.75 points. The shares of Indiamart Intermesh Ltd listed and registered gains of Rs 353.25 or 36.31 per cent to close at Rs 1,326.25.
Coming to the budget presented by India's first full time woman Finance Minister Nirmala Sitharaman, it clearly passed the muster in delivering the message of continuity and taking the nation forward. There were no major surprises whether pleasant or unpleasant and it has broadly laid out the government's desire to be a 5 trillion economy in the next five years.
Some of the key features of the same affecting the market could be enumerated below.
- STT or Securities Transaction Tax on options would now be levied on the difference between the strike price and the market price.
- A tax of 20 per cent plus surcharge has been levied on buyback of shares by listed entities with immediate effect. This would result in the tenderer of shares getting back the amount tax deducted. This effectively means that in the current year the divestment proceeds targeted by the government of Rs 1.05 lakh crore would be bereft of buybacks.
- The government has recommended to SEBI that the minimum public share holding in listed entities be increased from the present 25 per cent to 35 per cent. While this is a recommendation and would take a year or thereabouts to be formalised if accepted, it implies a three-year roadmap thereafter and would entail roughly Rs 4 lakh crore fresh paper hitting the markets. Some MNCs may choose to delist instead of diluting. This would help investors getting quality paper without valuations going up. Further this would also ensure that the primary market valuations would be reasonable as these issuers would be competing with the listed entities offering shares through the OFS route.
- Customs duties have been imposed or increased on consumer durables like tiles, marble slabs, split air conditioners and optic fibre cables amongst others. This is good news for the manufacturers of these products as any undue pressure on margin would reduce and there would be a boost for Make in India. It's a different story that stocks of these companies actually fell in trading on Friday.
- The customs duty on gold and precious stones has been raised. This is negative for the jewellery sector in the short term only. The real negative for this sector is that there would be a bigger incentive for smuggling as the differential at 12.5 per cent makes it attractive for smugglers to make an attempt at smuggling.
- The issue of NBFC has been tackled with PSU banks being encouraged to buy quality paper of NBFC's and the government providing an insurance of 10 per cent for six months on diminution in value of the same. Further, the housing finance NBFCs are being brought under the ambit of RBI.
- PSU banks would be given Rs 70,000 crore for recapitalising during the year. Further, after the mega-merger of Bank of Baroda with Dena Bank and Vijaya Bank, another such one or two mergers in the current year are on the anvil. This will reduce the number of banks and also make them that much stronger.
- Focus to be given on ETF's and one on financial services to be introduced on PSU's. Government to focus on them for divestment, looking at the success last year of CPSE ETF and Bharat 22, - Affordable housing given a boost with further interest deduction on buying first home. This will go a long way in helping realty space in tier 2 and tier 3 towns.
- The decision of the government to borrow in foreign currency through sovereign bonds will help the country in getting money for long term requirement of infrastructure spending at cheaper rates without affecting the local bond market. Bond yields have softened on this news over the last two days. The longer-term effect would be a stronger currency and an opportunity for foreigners/foreign institutions to invest in India without the currency risk.
The Finance Minister has announced a massive drive to upgrade rural roads with an outlay of 80,000 crore over the next five years. Similarly, a scheme for infrastructure involving roads and railways would be stepped up on the PPP model with private partnership playing a key role in the development.
The surcharge on income above Rs 2 crore and Rs 5 crore has been raised while all other slabs have been kept unchanged. While this would impact a fraction of a percentage of India's taxpayers, this would help the government not tax the larger population.
The fine print of the budget would continue to emerge over the coming week, but it appears that losses of 395 points on the BSESENSEX and 135 points on NIFTY suffered on Friday, the day the budget was presented, would certainly be made up in the coming week. The focus of the market would now shift to quarterly results with TCS announcing them on July 9 followed by Infosys on July 12. The growth in corporate performance is imperative as the same as been eluding markets for just too many quarters. Buy select PSU stocks and look for surprises in the results to build a portfolio.
(Arun Kejriwal is founder of Kejriwal Research and Investment Services)