The Union budget presented by Finance Minister Nirmala Sitharaman, the first under the Narendra Modi-led NDA government's second term, failed to excite equity markets on Friday. The broader indices declined 1 per cent as investors were concerned that while the budget did have several good proposals, it may not be enough to give boost to the sluggish economy. Another major worry was the proposal to increase the minimum level of public shareholding in listed companies, which would be negative for firms with higher promoter shareholding.
The BSE Sensex plunged 395 points to close at 39,513.39 points and the wider NSE Nifty50 index declined 136 points to close at 11,811.15.
“The markets got jittery on three counts, one about the increase in effective tax rates for HNI investors played down on market sentiment, the announcement related to increase in public shareholding from 25 per cent to 35 per cent if implemented will roughly add Rs 3.60 lakh crore of paper hitting the market and three, buybacks attract 20 per cent tax to close the loophole on DDT (dividend distribution tax),” said Mayuresh Joshi, portfolio manager at Angel Broking.
Automobile stocks were among the major losers, with the budget proposing higher excise duty as well as a one rupee road and infrastructure cess on petrol and diesel. The higher cess will further increase cost of ownership of vehicles, and dampen sentiments in a sector, where sales growth has already been slow over the past few months.
Budget 2019: Here are the highlights
Bajaj Auto, Maruti Suzuki, Tata Motors, Hero MotoCorp and Mahindra & Mahindra all fell between 2 per cent to 4 per cent. Oil marketing companies like Bharat Petroleum, Hindustan Petroleum and Indian Oil also declined.
On the other hand, state-owned banks saw some buying interest on the back of budget proposal to infuse Rs 70,000 crore. Canara Bank was up 1.4 per cent, Bank of Baroda rose 0.8 per cent and State Bank of India gained close to 1 per cent. Some of the non-banking finance companies also gained after the budget proposed measures, including incentivising banks to buy assets from them, to ease liquidity concerns.
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“Recapitalisation of the public sector banks and measures to support the NBFC sector are important steps that should help revive the ailing financial sector and consequently GDP growth,” said Abheek Barua, chief economist at HDFC Bank.
L&T Finance Holdings, Indiabulls Housing Finance, SREI Infra and Shriram Transport Finance, among others rose between 1 per cent and 3 per cent.
READ: Budget 2019: What changes for common man in terms of taxation?
“The highlight of the budget is the higher tax on the super rich. From the perspective of resource mobilisation and social justice, this cannot be faulted. But, it has to be acknowledged that the tax incidence rising to 42 per cent on the super rich is very sharp,” said V.K. Vijayakumar, chief investment strategist at Geojit Financial Services.
There are also questions on how the government is going to manage the fiscal deficit, which has been targeted at 3.3 per cent for 2019-2020, compared with 3.4 per cent last year.
“On broad accounts, the budget has been able to more than match the fiscal deficit target for FY20 at 3.3 per cent of GDP. However, the consolidation needs more scrutiny. The gross tax assumptions have been made over the revised estimates of FY19, while the FY20 required gross tax growth over provisional FY19 tax estimates looks high and optimistic at 18 per cent. Realistically, the government could undershoot the gross tax revenue by Rs 1 lakh crore plus,” said Madhavi Arora, economist at Edelweiss Securities.
