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Bull frenzy: Street soars on no-shock Budget

Sensex jumps 486 points on no increase in long-term capital gains tax and relaxed norms for FPIs; market mavens see the rally gaining steam

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Markets witnessed a strong rally on Wednesday on the presentation of Union Budget 2017. The BSE Sensex soared 485.68, or 1.76%, closing at 28,141.64 while Nifty rose 155.10 points, or 1.81% to close at 871.40.

Banking, metal, infrastructure, housing and paints sector stocks led the rally.

The announcement on affordable housing and Rs 3.96 lakh crore allocation for infrastructure led to a jump in cement stocks such as Shree Cements, Ambuja Cements, UltraTech Cement and ACC. Fertiliser companies rose 4% on allocation to irrigation scheme, greater insurance coverage, igniting hopes to bridge the protection gap in agriculture while PSU stocks rose 5.7%.

Experts see the momentum continuing.

“Sectors like housing, financial services are likely to witness a rally. Consumer sector will also gain, albeit marginally, since the reduction in income tax slabs means more money in the hands of people to spend. Equity market will see positive changes since fears on long-term capital gains tax did not come true. The move to abolish FIPB would improve ease of doing business in India and will boost foreign investments. Listing of PSUs will increase accountability,” Dinesh Kanabar, founder, Dhruva Advisors told DNA Money.

Experts said foreign direct investments could surge since the Budget proposed abolition of Foreign Investment Promotion Board (FIPB) in an attempt to ensure investment-conducive environment for foreign investors.

“The government has come up with market-friendly Budget which will spur growth. We expect a strong equity rally in the backdrop of falling bond yields and fixed income yields. With reduced market borrowing, the fiscal deficit coming down to 3.2% with the commitment to achieve 3% and cutting tax slabs from 10% to 5%, markets should pack in gains this year,” Sanjiv Bhasin, executive vice-president, IIFL told DNA Money.

The government’s decision to leave long-term capital gains tax untouched gave a breather to the Street. The FIPB roadmap which is expected to be out in some months will ensure adequate checks and balances to address administrative apprehensions, market participants said.

“Booking profit in sectors like housing, finance, metals and consumer discretionary is recommended. However, despite the government’s decision to soon launch FDI policy in addition to abolishing FIPB, foreign investments may not get a huge boost since corporate earnings results in the coming quarter will determine FII inflow,” G Chokkalingam, founder, Equinomics Research & Advisory, told DNA Money.

The proposed lifting of transfer provisions for FPIs/AIFs and supportive regulatory changes are also likely to buoy foreign investments, though no announcement on MAT or corporate tax, was disappointing, experts said.

“The Budget proposals are not inflationary, and thus, if food prices remain benign, we could expect some rate cuts by the RBI. Bond markets should like the lower net and gross borrowing number as it will lead to lower government bond supply. The decision to abolish FIPB and political funding reforms will be the key legacy of this Budget announcement. The absence of any tinkering to long-term capital gains on shares should sooth equity markets,” said Arvind Chari, head, fixed income and alternatives, Quantum Advisors.

On the bond market front, the lower net and gross borrowing number are likely to result in a lower government bonds supply, experts said. However, the Budget session remained devoid of any talks on improving the capital expenditure cycle.

“No changes in capital gains tax will soothe market nerves. Adherence to the fiscal deficit target of 3.2% and roadmap for the same is good for sentiments,” says Rakesh Tarway, head of research, Reliance Securities.

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