Impacts Of Union Budget On Indian Stock Markets

The Indian stock market was clouded with Union Budget worries the whole of last month. However the budget only spelt well for the market. In the coming times economic consolidation will lead to sustainable growth which will be beneficial for India Inc.

BUDGET CONCERNS prevailed in the Indian stock market during February. The market was more or less volatile. During the second half of February the market showed a little bit of consolidation. The Rail Budget was a non- event but Union budget was not. On the budget day sensex gained 175 points, the highest single day gain in February. Except the fuel price hike proposal the budget was pretty decent according to first reviews.

Finance Minister later stated that the inflationary impact of budget would be 0.41 percent. The wholesale price index in India rose 8.56% in January, mainly because of higher food prices. Estimates show that the figure will go up in the coming months also. Finance Ministers’s announcement regarding disinvestment and foreign investment were the major factors that influenced the Indian market on Budget day.

The February closing of sensex was at 16430, up by 0.44 percent against last month closing at the rate of 16358. Compared to January, February was a good month for Indian equities. Market expectations regarding the union budget were low but the Finance Minister surprised the street. His announcements regarding fiscal consolidation and fiscal deficit made everyone happy. Particularly when he stated that double digit growth rate was achievable. Positive impact of Budget has continued in the Indian stock market during the opening days of March also. Nifty was up by 40 points in February against its January closing. Midcap and Smallcap indices underperformed sensex and Nifty. Smallcap stocks were down by 2 percent whereas Midcap stocks recorded 1.72 percent decrease in February. Selling pressure in these stocks continued the whole month.

FIIs were in favour of Indian equities; altogether they bought equities worth Rs.1216.90 Cr. But Indian Insurance and Mutual Fund companies continued selling for the second consecutive month. DIIs sold Rs.309.80 Cr worth in equities during February. Mixed response was seen in different sectors. Reality was the most beaten down sector, it recorded a decrease of 7.51 percent. Oil companies and power sector companies were not in the radar of buyers.

Both down by 3.54 percent and 3.27 percent respectively. Public sector companies also felt the heat of selling pressure and were down by 2.74 percent. All other sectors barring these four were in the green territory. Consumer durable stocks were a hot favourite among traders in February. BSE CD index was up by 5.34 percent. Buying interest also seen in IT, Health Care and Auto stocks. All these sectors were up by above 3 percent.

Debt worries in Eurozone countries were another major event during this period. But it failed to make a strong impact in Indian stocks. Positive trend in Asian Indices influenced Indian stocks too. Government set its disinvestment target at Rs.40,000 Cr in FY2011 and has plans to redraw the foreign investment structure.

There are Budget proposals to give banking license to more public players and NBFCs. All these developments served as positive inputs to Indian stock market. Going ahead economic consolidation would lead to sustainable growth which will be beneficial for India Inc. Selective investment will be an intelligent decision now.

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6 Responses so far

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