Sensex Plunges 5.8% on India Budget

123jump.com Staff
06 Jul, 2009
New York City

The budget in India focused on rural development, job creations in villages, infrastructure development in urban areas and streamlined taxes. The budget deficit will surge to 6.8% on sharply higher borrowing. The Sensex index plunged 5.8%, rupee declined 1.2% and government bond yields jumped 0.1%.

[R]5:00 PM Mumbai, 7:30 AM New York – The budget in India focused on rural development, job creations in villages, infrastructure development in urban areas and streamlined taxes. The budget deficit will surge to 6.8% on sharply higher borrowing.[/R]

The much awaited fiscal budget focused on rural development, creating jobs at higher pays in government programs and focus on infrastructure development. Finance Minister Mukherjee forecasted 6.7% economic growth in the current fiscal year and 9% in the fiscal years 2011 and 2012.

Mukherjee also estimated budget deficit to decline to 5.5% and then to 4% in 2011 and 2012 fiscal years.

The government proposed to borrow 4.12 lakh crore rupees (or $93 billion) in the current fiscal year ending in March 2010. The borrowing will lift budget deficit to 6.8% from the 6.2% in the fiscal year ending in March 2009.

Foreign investors sold stocks after the government did not provide any additional incentives to attract investment in life insurance and financial services sectors. Domestic investors sold stocks after the government allocated 1,120 crore rupees for asset sale indicating that the government is not ready for more privatization.

The government increased budgetary spending more than 33% to 10.23 lakh crore rupees. The welfare scheme and Bharat Nirman expenditures spending will surge 45%. Rupees 3.91 lakh crore rupees will be spent in the National Rural Employment Guarantee Schemes and spending on roads in rural areas will be increased 59%.

The government will invest in LNG pipe line infrastructure to distribute natural gas off-shore fields on the east coast of India.

The budget provides extended farm debt relief by another six months, lowered short term interest rates on loans to farmers by 1% and offered 3.25 lakh crore rupees in farm credits.

The finance minister offered additional 15,000 rupees in tax exemption to senior citizens and 10,000 rupees exemption to all tax payers.

Trading Review

The Sensex index in India decreased 869.65 or 5.83% to 14,043.40 and CNX Nifty declined 261.45 or 5.9% to 4,162.80. Rupee dropped 1.2% to 48.46 against a dollar.

The yield on government bonds due 2014 jumped to 6.35% from 6.07%.

On BSE, turnover jumped to 7,314 crore rupees from 5,578 crore rupees and 522 shares fell, 1,995 increased and 68 were unchanged.

Of the stocks in the Sensex 30, 29 decreased and 1 increased.

Gainers & Losers

Reliance Industries plunged 6.5% to 1,893 crore rupees despite the government restoring tax holiday to natural gas fields developers.

Housing Development Finance Corp dropped 9.1% to after the government did provide any additional tax incentives to borrowers.

DLF dropped 8.2% to 309.25 rupees, Indiabulls Real Estate Ltd decreased 6.3% to 203.05 rupees and Unitech Limited plunged 9.3% to 75.90 rupees.

Maruti Suzuki Ltd decreased 2.1% to 1,035 rupees, Mahindra & Mahindra declined 3.7% to 710.40 rupees and Tata Motors edged 3.7% lower to 283.35 rupees.

State Bank of India dropped 8.6% to 1,655 rupees, HDFC Bank declined 5.9% to 1,427.20 rupees and IDBI Bank plunged 9.6% to 101.50 rupees.

Asian Markets Review

The Nikkei 225 Average in Tokyo closed lower 135.20 or 1.38% to 9,680.87, Hang Seng index in Hong Kong decreased 223.99 or 1.23% to 17,979.41 and CSI 300 index in China closed higher 47.62 or 1.43% to 3,374.75. ASX 200 index in Australia decreased 44.50 or 1.16% to 3,783.70. The KL Composite index in Malaysia closed lower 6.86 or 0.64% to 1,065.83.

The Kospi Index in South Korea increased 8.90 or 0.63% to close at 1,428.94. JSE Index in Indonesia decreased 40.29 or 1.94% to 2,035.01. The Sensex index in India decreased 869.65 or 5.83% to 14,043.40. The Thailand markets were closed today.