Union Budget fails to cheer markets

Union Budget failed to cheer Indian equity benchmarks on Friday, with both the larger peers, Sensex and Nifty, closing lower by 395 and 135 points, respectively. Markets made a positive start of the day, aided by Former Finance Minister Arun Jaitley’s statement that Indian economic growth graph was on an upward trajectory after past policy uncertainties have been replaced by certainties. Some support also came with reports that Ministry of Commerce and Industry has started an exercise to review the current Foreign Trade Policy 2015-20, in order to boost exports & domestic manufacturing and to reduce trade deficit.

However, in noon deals, markets turned negative to end in red terrain, after announcement of Union Budget. Domestic sentiments got hampered after Moody's said there are risks of India missing 3.3 per cent fiscal deficit target for the current financial year if tax revenue falls short of projection. The Budget 2019-20 lowered fiscal deficit projection for the current financial year to 3.3 per cent from 3.4 per cent targeted in the Interim Budget 2019-20 in February. The street remained pessimistic, as the US dragged India to the WTO by filing a complaint against New Delhi's move to increase customs duties on 28 American goods, alleging the decision is inconsistent with the global trade norms.

On the global front, European markets were trading in red, as Germany's factory orders declined more-than-expected in May. The figures from Destatis showed that factory orders decreased 2.2 percent month-on-month in May, in contrast to a 0.4 percent rise in April. On a yearly basis, factory orders plunged 8.6 percent annually, bigger than the 5.3 percent decrease seen in April. Asian markets ended mixed, after Japan's leading index eased to the lowest level in six-and-a-half years in May. The preliminary data from the Cabinet Office showed that the leading index, which measures the future economic activity fell to 95.2 in May from 95.9 in April.

Back home, retail companies stocks remained in focus after Finance Minister proposed local sourcing norms to be eased for single-brand retail FDI. Further, stocks related to agriculture sector also remained in limelight, as the government said it will invest in a big way in developing infrastructure in both agriculture and allied farm sector, and encourage private entrepreneurs in food processing. Presenting the Budget for 2019-20 fiscal, Finance Minister Nirmala Sitharaman said the government keeps ‘gaon, garib, aur kisan’ at the centre of everything that it does. Both 'ease of doing business' and 'ease of living' should apply to farmers too.

Finally, the BSE Sensex lost 394.67 points or 0.99% to 39,513.39, while the CNX Nifty was down by 135.60 points or 1.14% to 11,811.15.

The BSE Sensex touched a high and a low of 40,032.41 and 39,441.38, respectively and there were 06 stocks advancing against 25 stocks declining on the index.

The broader indices ended in red; the BSE Mid cap index fell 1.39%, while Small cap index was down by 1.36%.

The few gaining sectoral indices on the BSE were FMCG up by 0.18%, Bankex up by 0.14% and Telecom up by 0.03%, while Metal down by 3.85%, Realty down by 3.60%, Power down by 3.44%, Auto down by 2.83% and IT down by 2.64% were the top losing indices on BSE.

The top gainers on the Sensex were Indusind Bank up by 2.16%, Kotak Mahindra Bank up by 1.32%, SBI up by 0.90%, ITC up by 0.63% and Bharti Airtel up by 0.62%. On the flip side, Yes Bank down by 8.36%, NTPC down by 4.81%, Vedanta down by 4.41%, Mahindra & Mahindra down by 4.41% and Sun Pharma down by 4.34% were the top losers.

Meanwhile, Former Reserve Bank of India (RBI) governor Raghuram Rajan has said that public sector banks (PSBs) might perform far better if they are freed from some of the constraints they operate under such as paying above the private sector for low-skilled jobs and paying below the private sector for senior management positions, having to respond to government diktats on strategy or mandates, or operating under the threat of CVC/CBI scrutiny. However, he felt that such freedom typically requires distance from the government, so long as PSBs are majority-owned by the government, they may not get that distance.

Rajan also expressed view that there is no guarantee that privatization will be a panacea. He added that much of the discussion on privatization seems to make assumptions based on ideological positions. He noted that some private banks have been poorly governed. He said 'Instead, we need to recognise that ownership is just one contributor to governance and look at pragmatic ways to improve governance across the board. There certainly is a case to experiment by privatising one or two mid-sized public sector banks and reducing the government stake below 50 per cent for a couple of others, while working on governance reforms for the rest.'

Former RBI governor has argued that 'rather than continuing a never-ending theoretical debate, we will then actually have some evidence to go on’. Some political compromises will be needed to allow the process to go through, but so long as the newly privatised banks are not totally hamstrung in their operational flexibility as a result of these compromises, this will be an experiment worth undertaking.

The CNX Nifty traded in a range of 11,981.75 and 11,797.90. There were 06 stocks advancing against 44 stocks declining on the index.

The top gainers on Nifty were Indiabulls Housing Finance up by 3.42%, Indusind Bank up by 2.27%, Kotak Mahindra Bank up by 1.22%, ITC up by 0.97% and SBI up by 0.64%. On the flip side, Yes Bank down by 8.62%, NTPC down by 4.74%, Mahindra & Mahindra down by 4.73%, UPL down by 4.49% and Sun Pharma down by 4.30% were the top losers.

European markets were trading in red; UK’s FTSE 100 decreased 22.67 points or 0.3% to 7,580.91, France’s CAC decreased 17.04 points or 0.3% to 5,603.69 and Germany’s DAX decreased 27.15 points or 0.21% to 12,602.75.

Asian markets ended mixed on Friday as investors awaited the US jobs report later in the day for cues on Federal Reserve's stance on rate cuts. US employment is expected to increase by 160,000 jobs in June after an increase of 75,000 jobs in May. The jobless rate is expected to hold at 3.6 percent. The report could determine if the Federal Reserve cuts rates later this month to shore up the world's largest economy as trade tensions escalate. Meanwhile, trading volumes remained subdued across the region amid a holiday in the US overnight for the Independence Day. Japanese shares ended higher on hopes for progress in US-China trade talks.