The Hindu : Business : Stocks end on firm note

Online edition of India's National Newspaper
Wednesday, Mar 01, 2006

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Business

Stocks end on firm note

Special Correspondent

`FII strategists look at the macro picture'

Relaxation in FII limits in debt markets No likely impact on increased investment limit on govt. securities

MUMBAI: A confused stock market, in a volatile trading on Tuesday, greeted the Union Budget 2006-07 with a gain of 88.15 points at the close of trading. The market participants, toeing the line of foreign institutional investors (FIIs) in the latter part of trading, acknowledged that the markets' strength was determined by macro economic growth, which the Union Finance Minister underlined in his budget presentation.

"The budget for 2006-07 maintained its previous thrust on accelerating infrastructure spending, ensuring equitable growth and containing the fiscal deficit,'' said S. Naganath, President and Chief Investment Officer, DSP Merrill Lynch Fund Managers.

Sensex gains 88 points

The indices swayed to the tune of the Finance Minister's budget speech as the benchmark Bombay Stock Exchange (BSE) 30-Share Sensitive Index (Sensex) opened at 10,308.71, touched a low of 10,206.06, then a high of 10,422.65 and finally closed at 10,370.24, gaining 88.15 points. The range was as much as 217 points between the low and high. The NSE Nifty gained 7.25 points to close at 3074.70. Economy sectors, cement, steel, auto, engineering and fast moving consumer goods (FMCG) drove the gains.

FIIs heartened

"FII strategists typically look at the macro picture. The head line numbers of fiscal deficit, industrial growth and GDP growth all point to a sound future outlook. This budget will not significantly alter investment strategies of FIIs, and if they do changes it will only be for the positive. India is now looked at as a serious investment option and destination and they will be heartened to see India maintaining its growth trajectory — next only to China. The FIIs have been given extra room to participate in debt markets. Limits have been relaxed for government securities and corporate bonds,'' said Sandeep Sharma, Head, SG Private Banking India, a core business of the Societe Generale Group.

The positives include the relaxation in FII limits in the debt market and the mutual fund industry will further innovate with option of investing in foreign Exchange Traded Funds (ETFs). With no major negatives, the budget will see a run up in the weeks to come. The increase in the limit on FII investment in government securities from $1.75 billion to $2 billion is unlikely to have an impact on the yields of government securities. The limit on FII investment in corporate debt (from $500 million to $1.5 billion) could result in spread between corporate bond and government securities narrowing marginally.

"It is an excellent budget for the long term investor. The correction of the revenue deficit to 2.1 per cent and the fiscal deficit to 3.8 per cent are steps in the right direction at the macro level," said Uday Kotak, Executive Vice Chairman & Managing Director, Kotak Mahindra Bank.

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