Markets Give Budget a Thumbs Down (WSJ)

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Finance Minister Pranab Mukherjee’s fourth successive federal budget Friday got a big “thumbs down” from India’s investors.

The Bombay Stock Exchange’s benchmark Sensitive Index reversed an early 1.1% gain and fell to a day’s low of 17,426.58, down 1.4%, after the budget proposed a slew tax hikes and failed to show any credible reform or fiscal consolidation plan, market participants said.

The Sensex fell to its lowest in more than a week, down 1.2% to end at 17,466.20. This was the index’s lowest finish since March 7 when it finished at 17,145.52.

Analysts said the budget targets for growth and fiscal deficit were optimistic and the lack of a clear-cut plan to lower subsidy pay-outs was a negative.

“Nothing much has been touched on fertilizer, food, and oil subsidies that eat away into the government’s finances,” said Religare Mutual Fund’s Mohit Mirchandani.

He said the fiscal deficit target of 5.1% in the year starting April 1 was “unrealistic” and so is the growth target of 7.6% for the same period.

He says the government is banking on share sales in state assets to meet its fiscal gap but “will have to keep their fingers crossed and pray that the markets support the government’s disinvestment.”

The proposals aimed at increasing retail investor participation in stock markets, including a 20% cut in the tax levied on the sale or purchase of equities on delivery-based transactions to 0.1%, also did not cut much ice.

Stock market participants have long sought an overall reduction or scrapping of this tax to cut their transaction costs.

Kishor Ostwal, managing director at CNI Research, said the cut in the securities transaction tax is “insignificant” because only 5% of total volumes on exchanges come from delivery-based trades.

Mr. Ostwal expects the Nifty to fall 4% to 5,170 in the next five sessions, mainly as “foreign investors may withdraw because they have nothing to cheer about in the budget.”

This was a make-or-break budget, as an analyst would say. The government had one last chance to push through stalled economic reforms and take steps to bring in fiscal discipline. Next year’s budget, many say, will be a populist one as India heads into general elections in 2014.

And, many say, this was as big a missed opportunity as they come.

An investment banker, who asked not to be named, questioned the reason for all the “hype” before every budget, which eventually turns out to be an anti-climax year after year.

“I guess, it’s the legacy of budgets in India,” he said