MUMBAI: Market expectations were dashed after stand-in finance minister Pranab Mukherjee presented an interim budget for FY09-10 which was merely a statement of accounts.

Traders had built positions in beaten down sectors like realty, banks, capital goods and automobile, on expectations that the UPA government may announce some stimulus package and tax cuts before going to the polls.

“Market built a lot of expectations from the budget while it was just a vote-on-account. The government, even if it wants, can’t reduce taxes. Since the budget didn’t contain any major relief, markets are drifting lower. The trend will continue as there are no positive triggers expected till elections are over. Also, Indian markets outperformed all indices except China between Jan 23-Mar 13. Though there is profit booking right now, widening of discounts on Nifty suggests that traders have begun shorting the market,” said Alok Agarwal, head of research, KR Choksey Shares & Securities.

Experts feel the pre-budget rally is over as there is nothing positive to trigger the market until elections are over and as the global economic crisis is far from over.

“The vote-on-account was a non-event for the markets with no major initiatives or measures being announced. While a vote-on-account does not normally contain any major initiatives, we had expected some sector specific relief. This expectation was in view of the weak economic environment. The vote-on-account did little except announce some specific allocations to the social sector flagship programs of the UPA government. While higher spend on schemes like the Bharat Nirman may help in infrastructure creation, we believe these may help the government in the up-coming general election,” said Dipen Shah, Vice President, PCG-Research, Kotak Securities.

Shah added that “fiscal measures are expected to be announced in the full budget following the general elections, depending on the economic scenario. The vote-on-account has revised the FY09 fiscal deficit to 6% and revenue deficit to 4.4% of GDP, which are significantly beyond the budget estimates. This rise is mainly because of the fiscal measures taken during the fiscal, loan waiver package and also the higher subsidies. While the FY10 deficit figures are expected to be lower than FY09 revised estimates (in % terms), the FM has assumed a rise in revenues in FY10 v/s FY09. This may be difficult to achieve in the backdrop of a weak economy. Also, including the deficit at state level, the fiscal deficit is expected to be significantly higher.”

He said, “market will now be dictated by international events. Apart from the announcement of rate cuts by the RBI, we don’t expect triggers. If there is no negative news in the international markets, we will see range bound movement for the next one-two months.”

Ajay Parmar, head of research, Emkay Shares and Stock Brokers, said, “Nothing specific has come out on direct/indirect taxes and market is reacting to it. We see market drifting downwards from here. Once elections are announced, the government will not be able to announce new measures. RBI may announce rate cuts but that will have minimum impact.”

Sharekhan’s head of research Gaurav Dua said, “The interim budget failed to meet the heightened expectations of certain measures aimed at providing further stimulus to economic growth through fiscal concessions to some specific industries. The finance minister has maintained status quo on the direct and indirect tax structure. Moreover, the fiscal deficit estimate of 6 per cent for 2008-09 at the Centre is also higher than street expectations and indicates much higher stress on the overall fiscal situation.”

On a slightly optimistic note, Deepak Sawhney, head of research, Networth Stock Broking, said, “It’s knee-jerk reaction and market will bounce back to in a day or two mirroring Asian markets which are doing well.”

source: economic times

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