The Hindu : No cheer for bourses

Online edition of India's National Newspaper
Wednesday, Feb 04, 2004

Business

Business

No cheer for bourses

By Our Special Correspondent

MUMBAI, FEB. 3. Agriculture and farming is alien to the Indian stock markets and a budget (albeit an interim budget) that gave thrust to these failed to enthuse market participants. Moving in an intra-day range of 165 points, the Bombay Stock Exchange 30-share sensitive index ended with a loss of 75 points at 5621.

Even though the stock markets turned a blind eye to the achievements of the economy announced by the Finance Minister, market participants lauded the growth rates in the economy. "The Finance Minister has underlined the current strength of the Indian economy, and its sustainability into the foreseeable future, said Alok Vajpeyi, President, DSP Merrill Lynch Mutual Fund. Expectations of gross domestic product (GDP) growth in the region of 7.5 per cent to 8 per cent are above market expectations for 2003-04. Add to that the expectation that the fiscal deficit for 2003-04 will undershoot the original estimates of 5.6 per cent of GDP by nearly 1 per cent to 4.8 per cent, and indeed be limited to 4.4 per cent for 2004-05, and it becomes a reasonably heady macro economic cocktail.

With the Finance Minister's call on inflation being contained at around the 4-4.5 per cent level in the next few months or so from the current 6.13 per cent, and also targeting lower market borrowing for 2004-05 as compared to prevailing market expectations, "We can expect interest rates to remain soft in the near term," said Mr. Vajpeyi. The proposal to extend long-term capital gains tax exemption for stocks, for another three years, is further positive for the stock markets.

"The Vote on Account announcements by the Finance Minister continues the strong reform to growth bias of the Government. The highlight is certainly the three-year extension on the long-term capital gains tax exemption on stocks — you will remember that this announcement in the last budget was practically the harbinger of the current run-up," said Krishnamurthy Vijayan, CEO, JM Capital Management Pvt Ltd. The fiscal deficit at 4.4 per cent of estimated GDP for 2004-05 and consequent lower Government borrowing programme augurs well for the bond market. However, the impact of this positive development is unlikely to translate into lower yields in the bond market till inflation continues to rule high.

"The most important part in the current environment is not just the presentation of the feel good factor in the interim budget, but the fact that India is arriving as a prospective economic power within the next few years and the Government will not hesitate to take the necessary measures to accelerate the economic growth," said Hemang Raja, CEO, IL&FS Investsmart.

According to Mr. Raja, the extension of long-term capital gains tax exemption for equity shares for a further period of three years should go a long way in developing the equity cult among the Indian investors who have traditionally become low-risk and low-return investors and had become completely risk averse. Fiscal support for encouraging equity investment being the risk, capital is required for achieving high growth plans of the Indian corporate sector.

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