Nifty Mark the 5500

Indian equity benchmarks continues their upward march with the Nifty testing the 5500 level, an important psychological level, on the back of value buying in most of the beaten down shares. Auto, financial, infrastructure, oil & gas and metal were on the buyers' radar with thier respective indices up 2% to 5%, adding more than 500 points on the Sensex at 13:58 hours.

Solid growth in auto sales numbers showed that the growth momentum is still on the upward path. Consensus on the street was that the budget 2011 was neutral to positive as there were low expectations. Ridham Desai of Morgan Stanley said budget was okay, there was nothing bad in the budget.

"I think there is a sigh of relief that there is nothing untoward in the budget. He (FM) has done a decent balancing act. There were a lot of constituencies to serve."

Ridham Desai, Managing Director, Morgan Stanley said that the government’s move to allow global investors in mutual funds is very positive. Expressing his views on the budget, Desai noted that infra spending going up 27% is a big positive booster. He is expecting positive impact of 50-60 bps on earnings. However, he is little concerned on the revenue and subsidy numbers.

Specifically on the market, Desai said that an upside of 20% is expected on the indices. He has turned neutral from underweight on banks as he thinks valuations of banks and NBFCs are very good.

The budget 2011 was focused mainly on country's growth, boost to infrastructure, reduction in fiscal deficit, increase in foreign inflow and spending on better education for rising young population. It seems that the markets cheered this budget by pushing up the Nifty 170 points to 5,503.

The 30-share BSE Sensex surged 554 points to 18,378. Breadth also improved - about 1058 shares advanced as against 234 shares declined on National Stock Exchange.

Auto stocks were completely on the buyers' radar; the respective index jumped 5%, especially on the back of auto sales numbers and could be because of unchanged in excise duty. Tata Motors, M&M, Bajaj Auto and Maruti shot up 5-8%; Hero Honda was up 2%.

India's largest commercial vehicle maker Tata Motors sold 77,543 units in the month of February as against 69,427 in same period the previous year. Maruti Suzuki sold 1.11 lakh units in the month of February as against 96,650 in same period the previous year.

TVS Motor sold 1.73 lakh total 2-wheelers in February versus 1.40 lakh (YoY). M&M has reported total sales at 33,378 units as against 27,894 units (YoY).

Heavyweights Reliance Industries, TCS, Infosys, BHEL and ITC rallied 2-3%. NTPC and L&T surged 5%.

Private banks like ICICI Bank, Axis Bank and HDFC Bank shot up 4-4.5%; SBI, HDFC, IDFC, PNB and Kotak Mahindra Bank gained 2-4%. DLF from realty segment jumped 4%.

Among others, Sun Pharma, Sterlite, SAIL, Tata Steel, Hindalco, Ranbaxy, JSPL, Dr Reddy's Labs, Ambuja Cements, Cipla, Suzlon and Sesa Goa gained 2-6%.

In midcap space, Stride Arcolab, United Breweries, Glenmark, GMDC and Gujarat Gas were up 9-17% while Kirloskar Brothers, Rei Agro, Godfrey Phillip, KGN Industries and EIH fell 2-5%.

In smallcap space, KRBL, Shasun Pharma, Force Motors, Hinduja Foundries and Federal-Mogul gained 10-14% whereas Surana Inds, EIH Associated Hotel, Parenteral Drug, Urja Global and Hinduja Venture lost 5-9%.

Sensex Over 400 points

Buying across sectors strengthened the Sensex by 400 points at 12:46 hours, supported too by positive Asian cues. Auto, financials, infrastructure and metal companies' shares were leading the markets higher; the broader indices too were following the same trend.

NTPC was the leading stock with 5.5% rally followed by L&T and BHEL from infrastructure space with 3-4% gain. Heavyweights Reliance Industries, ITC and Infosys rallied 2% each.

Huge upside was seen in auto stocks, index jumped over 5%, especially on the back of auto sales numbers. Tata Motors, M&M, Bajaj Auto and Maruti shot up 5-9%; Hero Honda was up 2%.

India's largest commercial vehicle maker Tata Motors sold 77,543 units in the month of February as against 69,427 in same period the previous year. Maruti Suzuki sold 1.11 lakh units in the month of February as against 96,650 in same period the previous year

Auto Stocks , Banks drive Sensex Up

Indian equity rallied further on the back of consistent buying almost in all sectors barring technology at 11:32 hours. The Sensex gained more than 300 points and the Nifty added around 100 points in trade today, which were outperforming the Asian markets.

Auto was the leading sector, climbing nearly 4% on the back of good monthly sales numbers. M&M, Bajaj Auto, Maruti, Hero Honda, TVS Motor and Tata Motors shot up 2-5%. Maruti Suzuki sold 1.11 lakh units in the month of February as against 96,650 in same period the previous year. TVS Motor sold 1.73 lakh total 2-wheelers in February versus 1.40 lakh (YoY).

The BSE Bankex and Capital Goods indices went up around 2.5%. Among other indices, Metal, FMCG, Realty, Power, Healthcare and Oil & Gas indices were up 1-1.5%.

The 30-share BSE Sensex surged 348 points to 18,172 and the 50-share NSE Nifty gained 107 points at 5,440.

In the financial space, SBI, HDFC Bank, ICICI Bank, Axis Bank, HDFC and PNB rallied 2-3%. DLF from realty pack moved up over 2%.

Heavyweights Reliance Industries and NTPC were up 2% & 3%, respectively. L&T and BHEL from capital goods space surged 2.5% each.

SAIL, Hindalco, Sterlite, Hindalco and Jindal Steel from metal segment were up 1-2%. HUL, Infosys and ITC jumped 1.5-2%. However, Bharti Airtel, Wipro, TCS and Dr Reddy's Labs were the only losers on Nifty.

The broader indices were up 1.3-1.7%. About 998 shares advanced as against 252 shares declined on National Stock Exchange.

In midcap space, Gujarat Gas, Havells India, Glenmark, TVS Motor and Triveni Engg were up 6-8% while Shoppers Stop, Godfrey Phillip, Sintex India, EIH and Bajaj Corp were down 1.6-3%.

In smallcap space, KRBL, Asian Hotel (W), Rohit Ferro, Smartlink Network and Indian Hume Pipes gained 9-14% whereas Surana Inds, Emami Paper, Parenteral Drug, Ontrack Systems and Bheema Cements lost 5-6%.

Asian markets too were trading higher - Nikkei, Straits Times and Taiwan went up 1-1.6%. Shanghai was up nearly 0.7%.

Budget 2011: Reliefs in Taxes

The Union Budget for 2011-12 presented by Finance Minister Pranab Mukherjee to Parliament on Monday is widely seen as taxpayer- and market-friendly. While it provides tax relief to individual taxpayers and corporate assessees, it has also sought to avoid any across-the-board increases in excise and service taxes – as was widely expected following suggestions from the Prime Minister’s Economic Advisory Council. The Council had said recently that the time was ripe to withdraw the fiscal stimulus of 2008-10.

But the Finance Minister apparently disagrees. He said: "In my last Budget, I had started rolling back the fiscal stimulus implemented over 2008-09 and 2009-10 to mitigate the impact of the global financial crisis on the economic slowdown in India. In the course of the year, I have moved further on that path. I believe that a part of the current recovery must be stored away to build future resilience. Indeed, a counter-cyclical fiscal policy is our best insurance against external shocks and localised domestic factors."

So, Mukherjee is obviously not sure that growth will remain robust if he tightens the screws just now. The main highlights of his budget proposals are the scattering of reliefs here and there, with the big sting being left for later. The following are the main budget proposals, and their possible impact.

* The surcharge on corporate tax on domestic companies will be cut from 7.5% to 5%.  However, the Minimum Alternate Tax goes up to 18.5% from 18% to keep the effective level of taxation for MAT companies the same. Companies will welcome the relief.

*  Individual taxpayers get a higher basic deduction of Rs 1.8 lakh; every taxpayers get minor relief of Rs 2,000. It’s a minor drop in the bucket given the ravages of inflation.

* Senior citizens get a bonanza. Apart from an increase in the exemption limit to Rs 2.5 lakh, the entitlement age for senior citizens is now 60, not 65. A new class of super senior citizens aged above 80 gets an even higher IT exemption limit of Rs 5 lakh. For a young country, Pranab, 76, is obviously rooting for senior citizens.

 * Service tax stays at the same level as before at 10%, but several new services have been brought within its ambit. Among them: hotels with tariffs above Rs 1,000 (5% service tax), restaurants with bar and A/C (3%), hospitals with more than 25 beds and with A/C (5%), and air travel (Rs 50 more for domestic, Rs 250 for international). Business class air travel will attract a full 10% service tax. Hotels, five-star restaurants and airlines will scream.

* The base excise rate stays at 10%, but exemptions on some 130 items are being withdrawn. A basic rate of 1% is being levied. Another 240 items that are still exempt will be attracting tax when the goods and services tax is introduced next year. One can expect inflation to get a nudge up.

* Inflation, reforms and black money generation got some mention, but nothing substantive. The amnesty scheme for bringing back black money was missing in the budget. The government is obviously not keen to be seen as reactive to public criticism of corruption.

* Subsidies on fertiliser, kerosene and cooking gas (LPG) will be cash-based by March, 2012. No measures on fuel deregulation were, however, announced. The urea subsidy will soon become nutrient-based. Good in intent, a lot will depend on political will. One can expect the Left to be critical of the proposal.

*  The public sector disinvestment target has been upped to Rs 40,000 crore in 2011-12; the current fiscal’s target was reduced to 22,144 crore due to higher realisations from other sources. But it could be because of the government’s inability to reform oil prices. While Indian Oil was forced to review its further public offer due to losses, ONGC’s plans appear to have been delayed. A lot will depend on how the market fares after the budget.

*  Foreign institutional and non-institutional investors get more options for investment. While the total ceiling on debt is raised to US$40 billion, individual investors who are KYC (know-your-customer) complaint can invest in Indian mutual funds. This could indirectly give a fillip to market sentiment. Positive for market sentiment, but don’t expect a flood of foreign funds to come into equity.

*  Many sops for infrastructure have been announced. While Rs 30,000 crore worth of tax-free bonds will be on offer next year, the Rs 20,000 additional tax deduction available for investing in infra bonds will be retained for another year. Nothing earth-shattering in all this.

*  Small sops have been offered to housing, especially low-cost housing. The 1% interest rebate will be applicable for loans upto Rs 15 lakh on houses costing upto Rs 25 lakh. Loans upto Rs 25 lakh will qualify as priority sector loans (against Rs 20 lakh now). One cannot expect any major fillip to housing with this. Realty is already beyond reach in most metros even for the middle class.

Overall, the centre’s direct tax reliefs will cost Pranab Mukherjee Rs 11,500 crore, while his indirect tax levies will bring in Rs 11,300 crore. The fiscal deficit will be contained at 4.6% next year against 5.1% this year, with the 2013-14 target being 3.5%.

TAX IMPACTS & KEY ISSUES: BUDGET 2011

• Corporate tax surcharge reduced from 7.5% to 5%. Minimum alternate tax rate up from 18% to 18.5%.
• IT exemption for taxpayers raised from Rs 1.6 lakh to Rs 1.8 lakh. Tax relief is about Rs 2,000 across-the-board.
• Senior citizens to get higher IT deduction limit of Rs 2.5 lakh. Entitlement age reduced to 60 from current 65
• New category of senior citizens above 80 years to get higher IT deduction limit of Rs 5 lakh from this year
• Service tax levels and excise stay at 10%; Peak rate of customs duty remains unchanged
• Excise exemptions withdrawn on 130 items; to pay minimum excise of 1% from next year
• Foreign individual investors allowed to invest directly in mutual funds subject to KYC requirements
• Govt to allow issue of Rs 30,000 crore worth of tax-free bonds by infrastructure companies in 2011-12
• Tax deduction for investment in infrastructure bonds of Rs 20,000 extended for one more year
• Investment in fertiliser plants and machinery to be treated as infrastructure investment
• Fiscal deficit for 2010-11 seen at 5.1% against 5.5% budgeted; deficit for 2011-12 projected at 4.6% of GDP
• Government to introduce direct cash payments for those entitled to subsidies in kerosene, cooking gas and fertiliser by March, 2012.
• Government considering extension of nutrient-based subsidy for urea, the largest chunk of fertilisers used in agriculture
• National mission for electric and hybrid vehicles to be set up to create environment-friendly automobiles
• Priority sector home loans limit raised to Rs 25 lakh from Rs 20 lakh.
• Interest subvention on home loans up to Rs 15 lakh. Mortgage risk guarantee corporation to insure loans to the poor
• Public sector disinvestment target for 2011-12 is raised to Rs 40,000 crore
• Centre's net borrowing figure for 2011-12 fixed at Rs 3,43,000 crore; fiscal deficit figure at Rs 4,12,000 crore
• Cement excise duties will be shifted to valorem basis from specific duty now
• Loss on direct tax reliefs at Rs 11,500 crore; gain on indirect tax changes at Rs 11,300 crore
• FM says no need to remove stimulus package at this stage, but will withdraw excise exemptions