Sensex Plunges 4% As Budget Disappoints

Ivaylo
28 Feb, 2007
New York City

The market plunged Wednesday, finishing below the 13,000 level on heavy selling in an extremely volatile session. The long-awaited Union Budget did not surprise investors as it was aimed at taming inflation and the price increase. IT and cement stock were hit the most with Satyam and Gujarat Ambuja leading the decliners. Only ITC gained of 30 stocks Sensex index.

[R]8:00AM NY-7:00PM Mumbai Sensex drops steeply on Budget Day.[/R]
The Sensex on BSE finished 540.74 points, or 4.01%, lower at 12,938.09. The market was highly volatile and traded within a range of almost 500 points. The market-breadth was very weak as there were four decliners to every advancer. Of the 30 stocks in the Sensex, only ITC advanced, while the other 29 stocks declined. Of all the stocks, 598 stocks advanced, 1,900 declined and 32 were unchanged. The turnover on BSE was Rs 5,825.82 crore, higher than Rs 4,019.74 crore on Tuesday. On NSE, the turnover was Rs 12,686.73 crore, much higher than Rs 8,148.78 crore on Tuesday.

Economic news

The Union Budget

Finance Minister Chidambaram presented the budget for 2007-08 to parliament today.

Highlights

The average inflation rate is seen at between 5.2% and 5.4 % in 2006/07 and the government is confident it can tackle the present inflationary trend. Revenue deficit remains at 2.1% and fiscal deficit is at 2% of GDP. Increase in gross tax revenue is by 19.9%. The minister also said all indicators point to an accelerating rate of investment. During the period between April 2006 and January 2007 foreign direct investment is estimated at $12.5 billion. Overseas investment exceeds portfolio investments. Government is to set up a panel to study the impact of forward trading in commodities. Exports are seen crossing Rs 5,53,260 crore, or $125 billion in 2006/07.

The budget does not hold any surprises to investors and is geared towards taming inflation and the increase in prices. There are no changes in the personal income tax slabs, rates; corporate income tax, central exercise, service tax rates and the other levies. Only the peak customs duties have been reduced by 2.5% on non-farm products to make the industrial inputs cheaper that is aimed at tempering with retail prices of consumer goods.

Investors are particularly dissatisfied with the increase in dividend distribution tax by 2.5% and bringing all knowledge-based companies under the minimum alternative tax, or MAT.

As a whole, the budget disapponts. There are no steps proposed to increasing productivity in agriculture, electricity and other sectors, which badly need investments and productivity improvement..

Trading highlights

Reliance was the most-active stocks with a turnover of Rs 325.25 crore followed by Reliance Communications and Infosys.

Advancers

ITC was the only gainer of the Sensex stocks, as it rose 4.03% to Rs 171.85, on the premise that it will be able to pass on the 5% hike in excise duty announced on cigarettes to customers. The Finance Minister P Chidambaram today announced a complete exemption of excise duty on all instant food mixes and biscuits, whose retail price does not exceed Rs 50 a kilo. ITC is not only the top cigarette maker, it also makes biscuits and ready-to-eat food. Relief from excise duty for biscuits and ready-to-eat foods will support for the company.

Decliners

Satyam Computers led the decliners, down 8.42% to Rs 412.5, Wipro lost 7.3% to Rs 560.9 were the most prominent decliners among the IT stocks. Index heavy Reliance Industries declined 3.65% to Rs 1,353.80 on a volume of 23.76 lakh shares. HDFC shed over 6% to Rs 1,502. Tata Steel and Maruti slipped around 5.5% each to Rs 443 and Rs 838, respectively.

Gujarat Ambuja Cements shed 7.8% to Rs 116, ACC dipped 6.4% to Rs 900. Other cement stocks also lost. Grasim tumbled over 5% to Rs 2,213. UltraTech Cement plunged nearly 6% to Rs 891, and Shree Cement dropped over 7% to Rs 1,147.