Post Budget - Sensex plunges by 63 points
Contrary to expectations of further gains, the market retreated on Tuesday as selling pressure emerged in stocks after the Union Budget lifted the BSE Sensex sharply higher on Monday. Selling pressure was seen almost across the board, with technology, refinery, cement and banking stocks losing ground on profit booking on Tuesday.
After touching its lifetime high of 6,725.92 in opening trade, the 30-share Sensitive Index (Sensex) traded in the red for most part of the session, and eventually ended with a loss of 62.78 points, or 0.94%, at 6,651.08. The broader 50-share NSE S & P CNX Nifty index shed 18.85 points, or 0.90%, to end at 2,084.40.
While investors cheered the Union Budget 2005-06 by lifting the Sensex by 144 points on Monday, a bout of profit booking dragged down the Sensex by over 80 points at one point on Tuesday. Overall, the budget has been termed as good, following a cut in corporate tax, the governments emphasis on infrastructure and the continuation of the reforms process. In budget proposals, the finance minister reduced the corporate tax for domestic firms to 30%. The corporate tax rate for domestic firms was cut to an effective rate of 33%, including a surcharge, from 35%. A cut in peak customs duty to 15% from 20% is expected to help a number of industries for the raw materials that they import. The rationalisation in the personal tax structure is also likely to benefit tax payers.
Despite Tuesdays losses, players expect the market to recover after a modest correction. While the next few trading sessions could remain volatile as the fine print of the budget gets analysed, the undertone of the market is expected to remain optimistic with sustained fund inflows on the back of a strong growth story.
FIIs put in a huge Rs 464.10 crore on net basis on Friday (25 February) after putting in a net Rs 41.50 crore on Thursday (25 February). The inflow in February 2005 has set new records in terms of highest inflow in a month at Rs 8,376.30 crore.
The breadth of the market was negative with 1,528 losers and 852 gainers. Volumes on the bourses were modest, with shares worth Rs 2,315 crore being traded on BSE today, compared to Rs 2,950 crore on Monday. On NSE, 38.08 crore (45.74 crore) shares worth Rs 5,2725.85 crore (Rs 6,388.23 crore) were traded.
Technology stocks were the major losers on Tuesday. The BSE IT Sector index declined 69.33 points, or 2.57%, to end at 2,629.94.
Technology blue chips Satyam Computer (down 4.10% to Rs 394.50), Wipro (down 3.33% to Rs 675.85), Infosys Tech (down 2.48% to Rs 2,181.55) and TCS (down 1.82% to Rs 1,355.80) declined on selling pressure after recent gains.
While there has been nothing negative for the IT sector in the Union Budget 2005-06, a section of the market feels that IT companies may be modestly affected by the 30% Fringe Benefit Tax, which is a tax on value of perquisites or fringe benefits provided by an employer to his employees.
"The rationale for levying a fringe benefit tax on the employer lies in the inherent difficulty in isolating the personal element where there is collective enjoyment of such benefits and attributing the same directly to the employee," the budget document states.
Other tech stocks HCL Info (down 4.05% to Rs 810.05), Geometric Software (down 3.53% to Rs 434.50), Financial Tech (down 3.49% to Rs 279), Infotech Enterprises (down 3.14% to Rs 236.15), I-flex solutions (down 2.35% to Rs 630) and HCL Tech (down 2.27% to Rs 330) also ended lower on selling pressure.
Software companies spend 5-10% of revenues on travel, telephone, hotels etc. According to a report, software companies will have to pay 30% tax on travel expense (20% considered as fringe benefit), telephone expenses (10% considered as fringe benefit), repairs and maintenance (20% considered as fringe benefit), gifts, clubs, entertainment, superannuation and employee welfare (50% considered as fringe benefit).
Weakness was also conspicuous in metal stocks. The BSE Metal index shed 84.16 points, or 1.27%, to end at 6,545.86.
Nalco (down 2.88% to Rs 171.75) lost ground after the PSU aluminium major reduced prices of aluminium and other products by Rs 1,000 per tonne on Tuesday. Prices of aluminium ingots have fallen to Rs 93,150 per tonne. Close to 1 lakh Nalco shares were traded on BSE today.
Hindalco (down 3.14% to Rs 1,350.70) also traded lower on reports that the Aditya Birla Group aluminium major may also follow suit by cutting aluminium prices soon.
Other metal stocks Hind Copper (down 7.13% to Rs 58), Swil (down 4.20% to Rs 17.80), Essar Steel (down 3.70% to Rs 45.50), Steel Authority of India (down 2.67% to Rs 63.75) and Jindal Stainless (down 1.63% to Rs 99.45) also traded lower on selling pressure following the governments decision to cut customs duty on primary and semi-finished forms of aluminium, copper, zinc, stainless steel and ferro-alloys to 10% from 15%.
PSU refining / marketing stocks Kochi Refineries (down 4.69% to Rs 171.70), Indian Oil (down 4.76% to Rs 468.05), BPCL (down 4.51% to Rs 408.45), IBP (down 4.05% to Rs 557) and HPCL (down 2.93% to Rs 340.95) traded lower following a duty rejig in the budget that would affect marketing margins.
In the Union Budget 2005-2006, customs duty for crude, petrol, diesel, kerosene and LPG has been reduced by 5%. Excise duty on kerosene and LPG has been reduced to 0%. Simultaneously, there has been an increase in excise duty on both diesel and petrol. Following the duty rejig, the marketing margins of oil refining cum marketing companies will fall as the excise duty increase in diesel and petrol is expected to more than make up the savings on account of reduction in excise duty in kerosene and LPG.
Higher crude oil prices also weighed on refinery stocks. US light crude oil for April delivery rose 26 cents to settle at $51.75 a barrel on the New York Mercantile Exchange. High oil prices may affect the Indian economy, since India imports nearly two-thirds of its crude oil requirements.
Cement blue chips UltraTech Cements (down 1.85% to Rs 365.35), Gujarat Ambuja Cements (down 2.46% to Rs 438.30), ACC (down 1.29% to Rs 362.25) and Grasim (down 1.17% to Rs 1,329.80) lost ground on selling pressure after recent gains.
Banking stocks displayed mixed trends following the Reserve Bank of India (RBI)s announcement of a roadmap for presence of foreign banks in India and guidelines on ownership in private sector banks. The BSE Bankex shed 62.27 points, or 1.59%, to end at 3,854.19, coming off its days high of 3,936.21.
Banking pivotals State Bank of India (down 2.67% to Rs 695.30), ICICI Bank (down 2.30% to Rs 372) and HDFC Bank (down 1.68% to Rs 577.20) declined on profit booking after Mondays gains.
RBI said on Monday that foreign banks can buy minority stakes only in those private sector banks which have been identified by RBI for restructuring. In such banks, foreign banks would be allowed to acquire a controlling stake in a phased manner. RBI said that the foreign banks, which can invest in but not control banks, would eventually be able to take controlling stakes in such banks, possibly within five years, but even then their stakes would be capped at 74%. RBI also said that any individual or company, which is not a bank, would not be allowed to own more than 10% of a private bank without its permission.
Automobile stocks also traded mixed with negative bias. The BSE Auto index ended 8.41 points lower at 2,771.38,
Maruti Udyog (down 2.24% to Rs 462.55) traded lower coming off its days high of Rs 476 on selling pressure after the company said that it sold 43,603 vehicles in February 2005, up 3.2% from a year ago. Sales in February were affected by expectations of an excise duty cut in the budget. The budget, unveiled on Monday, did not propose a duty cut on cars. Over 7.70 lakh MUL shares were traded on BSE.
Other automobile stocks Eicher (down 6.31% to Rs 183.30), Eicher Motors (down 3.60% to Rs 321), Tata Motors (down 2.33% to Rs 464.10), Hind Motors (down 1.43% to Rs 31.10) and Ashok Leyland (down 1.27% to Rs 23.40) also ended lower on selling pressure.
Bajaj Auto (up 1.16% to Rs 1,045.30) traded steady having recovered from the days low of Rs 1,026 on selective buying after the company said that its February 2005 sales rose 24.8% to 158,129 units from 126,678 a year ago. It said sales of motorcycles rose 53.7% to 129,409 units, but sales of three-wheelers fell nearly 8% to 18,556 units. Exports rose nearly 39% to 19,204 units.
Hero Honda Motor (up 1.11% to Rs 550.30) ended steady recovering from the days low of Rs 536.20 as buying continued on the counter after early weakness. The company said that it sold 223,546 motorcycles in February 2005, up 9.3% from 204,555 units in the same month in 2004. Over 2.26 lakh HHML shares were traded on BSE.
Engineering and construction maker L & T (up 5.22% to Rs 1,142.40) gained further ground touching a lifetime high of 1,148 on sustained buying interest on the counter on the back of the thrust on the infrastructure sector in the Union Budget. Over 2.75 lakh L & T shares were traded on BSE today.
The finance minister said the record foreign exchange reserves can be used to fund domestic infrastructure projects. A proposal to set up a special purpose vehicle (SPV) has been mooted to fund these. The borrowing limit of the SPV is set at Rs 10,000 crore for the financial year to 31 March 2006. In the budget, the allocation to highway projects has been stepped up by 43% on year-on-year basis. An outlay of Rs 5,500 crore would be incurred on renovation of 7 mega cities. Regarding rural infrastructure, specific targets have been set for providing roads, housing, drinking water, electricity and telephone connectivity for villages.
After touching its lifetime high of 6,725.92 in opening trade, the 30-share Sensitive Index (Sensex) traded in the red for most part of the session, and eventually ended with a loss of 62.78 points, or 0.94%, at 6,651.08. The broader 50-share NSE S & P CNX Nifty index shed 18.85 points, or 0.90%, to end at 2,084.40.
While investors cheered the Union Budget 2005-06 by lifting the Sensex by 144 points on Monday, a bout of profit booking dragged down the Sensex by over 80 points at one point on Tuesday. Overall, the budget has been termed as good, following a cut in corporate tax, the governments emphasis on infrastructure and the continuation of the reforms process. In budget proposals, the finance minister reduced the corporate tax for domestic firms to 30%. The corporate tax rate for domestic firms was cut to an effective rate of 33%, including a surcharge, from 35%. A cut in peak customs duty to 15% from 20% is expected to help a number of industries for the raw materials that they import. The rationalisation in the personal tax structure is also likely to benefit tax payers.
Despite Tuesdays losses, players expect the market to recover after a modest correction. While the next few trading sessions could remain volatile as the fine print of the budget gets analysed, the undertone of the market is expected to remain optimistic with sustained fund inflows on the back of a strong growth story.
FIIs put in a huge Rs 464.10 crore on net basis on Friday (25 February) after putting in a net Rs 41.50 crore on Thursday (25 February). The inflow in February 2005 has set new records in terms of highest inflow in a month at Rs 8,376.30 crore.
The breadth of the market was negative with 1,528 losers and 852 gainers. Volumes on the bourses were modest, with shares worth Rs 2,315 crore being traded on BSE today, compared to Rs 2,950 crore on Monday. On NSE, 38.08 crore (45.74 crore) shares worth Rs 5,2725.85 crore (Rs 6,388.23 crore) were traded.
Technology stocks were the major losers on Tuesday. The BSE IT Sector index declined 69.33 points, or 2.57%, to end at 2,629.94.
Technology blue chips Satyam Computer (down 4.10% to Rs 394.50), Wipro (down 3.33% to Rs 675.85), Infosys Tech (down 2.48% to Rs 2,181.55) and TCS (down 1.82% to Rs 1,355.80) declined on selling pressure after recent gains.
While there has been nothing negative for the IT sector in the Union Budget 2005-06, a section of the market feels that IT companies may be modestly affected by the 30% Fringe Benefit Tax, which is a tax on value of perquisites or fringe benefits provided by an employer to his employees.
"The rationale for levying a fringe benefit tax on the employer lies in the inherent difficulty in isolating the personal element where there is collective enjoyment of such benefits and attributing the same directly to the employee," the budget document states.
Other tech stocks HCL Info (down 4.05% to Rs 810.05), Geometric Software (down 3.53% to Rs 434.50), Financial Tech (down 3.49% to Rs 279), Infotech Enterprises (down 3.14% to Rs 236.15), I-flex solutions (down 2.35% to Rs 630) and HCL Tech (down 2.27% to Rs 330) also ended lower on selling pressure.
Software companies spend 5-10% of revenues on travel, telephone, hotels etc. According to a report, software companies will have to pay 30% tax on travel expense (20% considered as fringe benefit), telephone expenses (10% considered as fringe benefit), repairs and maintenance (20% considered as fringe benefit), gifts, clubs, entertainment, superannuation and employee welfare (50% considered as fringe benefit).
Weakness was also conspicuous in metal stocks. The BSE Metal index shed 84.16 points, or 1.27%, to end at 6,545.86.
Nalco (down 2.88% to Rs 171.75) lost ground after the PSU aluminium major reduced prices of aluminium and other products by Rs 1,000 per tonne on Tuesday. Prices of aluminium ingots have fallen to Rs 93,150 per tonne. Close to 1 lakh Nalco shares were traded on BSE today.
Hindalco (down 3.14% to Rs 1,350.70) also traded lower on reports that the Aditya Birla Group aluminium major may also follow suit by cutting aluminium prices soon.
Other metal stocks Hind Copper (down 7.13% to Rs 58), Swil (down 4.20% to Rs 17.80), Essar Steel (down 3.70% to Rs 45.50), Steel Authority of India (down 2.67% to Rs 63.75) and Jindal Stainless (down 1.63% to Rs 99.45) also traded lower on selling pressure following the governments decision to cut customs duty on primary and semi-finished forms of aluminium, copper, zinc, stainless steel and ferro-alloys to 10% from 15%.
PSU refining / marketing stocks Kochi Refineries (down 4.69% to Rs 171.70), Indian Oil (down 4.76% to Rs 468.05), BPCL (down 4.51% to Rs 408.45), IBP (down 4.05% to Rs 557) and HPCL (down 2.93% to Rs 340.95) traded lower following a duty rejig in the budget that would affect marketing margins.
In the Union Budget 2005-2006, customs duty for crude, petrol, diesel, kerosene and LPG has been reduced by 5%. Excise duty on kerosene and LPG has been reduced to 0%. Simultaneously, there has been an increase in excise duty on both diesel and petrol. Following the duty rejig, the marketing margins of oil refining cum marketing companies will fall as the excise duty increase in diesel and petrol is expected to more than make up the savings on account of reduction in excise duty in kerosene and LPG.
Higher crude oil prices also weighed on refinery stocks. US light crude oil for April delivery rose 26 cents to settle at $51.75 a barrel on the New York Mercantile Exchange. High oil prices may affect the Indian economy, since India imports nearly two-thirds of its crude oil requirements.
Cement blue chips UltraTech Cements (down 1.85% to Rs 365.35), Gujarat Ambuja Cements (down 2.46% to Rs 438.30), ACC (down 1.29% to Rs 362.25) and Grasim (down 1.17% to Rs 1,329.80) lost ground on selling pressure after recent gains.
Banking stocks displayed mixed trends following the Reserve Bank of India (RBI)s announcement of a roadmap for presence of foreign banks in India and guidelines on ownership in private sector banks. The BSE Bankex shed 62.27 points, or 1.59%, to end at 3,854.19, coming off its days high of 3,936.21.
Banking pivotals State Bank of India (down 2.67% to Rs 695.30), ICICI Bank (down 2.30% to Rs 372) and HDFC Bank (down 1.68% to Rs 577.20) declined on profit booking after Mondays gains.
RBI said on Monday that foreign banks can buy minority stakes only in those private sector banks which have been identified by RBI for restructuring. In such banks, foreign banks would be allowed to acquire a controlling stake in a phased manner. RBI said that the foreign banks, which can invest in but not control banks, would eventually be able to take controlling stakes in such banks, possibly within five years, but even then their stakes would be capped at 74%. RBI also said that any individual or company, which is not a bank, would not be allowed to own more than 10% of a private bank without its permission.
Automobile stocks also traded mixed with negative bias. The BSE Auto index ended 8.41 points lower at 2,771.38,
Maruti Udyog (down 2.24% to Rs 462.55) traded lower coming off its days high of Rs 476 on selling pressure after the company said that it sold 43,603 vehicles in February 2005, up 3.2% from a year ago. Sales in February were affected by expectations of an excise duty cut in the budget. The budget, unveiled on Monday, did not propose a duty cut on cars. Over 7.70 lakh MUL shares were traded on BSE.
Other automobile stocks Eicher (down 6.31% to Rs 183.30), Eicher Motors (down 3.60% to Rs 321), Tata Motors (down 2.33% to Rs 464.10), Hind Motors (down 1.43% to Rs 31.10) and Ashok Leyland (down 1.27% to Rs 23.40) also ended lower on selling pressure.
Bajaj Auto (up 1.16% to Rs 1,045.30) traded steady having recovered from the days low of Rs 1,026 on selective buying after the company said that its February 2005 sales rose 24.8% to 158,129 units from 126,678 a year ago. It said sales of motorcycles rose 53.7% to 129,409 units, but sales of three-wheelers fell nearly 8% to 18,556 units. Exports rose nearly 39% to 19,204 units.
Hero Honda Motor (up 1.11% to Rs 550.30) ended steady recovering from the days low of Rs 536.20 as buying continued on the counter after early weakness. The company said that it sold 223,546 motorcycles in February 2005, up 9.3% from 204,555 units in the same month in 2004. Over 2.26 lakh HHML shares were traded on BSE.
Engineering and construction maker L & T (up 5.22% to Rs 1,142.40) gained further ground touching a lifetime high of 1,148 on sustained buying interest on the counter on the back of the thrust on the infrastructure sector in the Union Budget. Over 2.75 lakh L & T shares were traded on BSE today.
The finance minister said the record foreign exchange reserves can be used to fund domestic infrastructure projects. A proposal to set up a special purpose vehicle (SPV) has been mooted to fund these. The borrowing limit of the SPV is set at Rs 10,000 crore for the financial year to 31 March 2006. In the budget, the allocation to highway projects has been stepped up by 43% on year-on-year basis. An outlay of Rs 5,500 crore would be incurred on renovation of 7 mega cities. Regarding rural infrastructure, specific targets have been set for providing roads, housing, drinking water, electricity and telephone connectivity for villages.