Indices soar as Budget offers tax balm

Mumbai : Union Finance Minister Arun Jaitley's third budget propelled the domestic markets to soar about two percent on Wednesday. A focus on fiscal discipline and clarity on FPI taxation as reflected in the Union Budget came as music to investors' ears, with the Sensex leaping nearly 486 points to close at an over 3-month high of 28,142 registering its biggest ever single-session gain since 2005. Both key indices Sensex and Nifty reclaimed their key levels of 28,000 and 8,700 for the first time, scoring their biggest single-day gain since October 2016. The domestic markets took a sigh of relief as Jaitley didn't announce more populist measures.

Financial and realty stocks powered the show. Markets welcomed the budgetary proposals of infusing Rs 10,000 crore in public sector banks and keeping long-term (LTCG) and short-term capital gains tax (STCG) unchanged for the capital market. Additionally, Jaitley proposed that category I and II foreign portfolio investors (FPIs) should be exempted from taxation on indirect transfers, which made investors a happy lot.

Perhaps this reason resulted in a whopping rally in an otherwise overbought market. The Sensex, which kept moving in a tight range immediately after the Budget was presented in Parliament, started climbing and closed higher by 485.68 points, or 1.76 per cent, at 28,141.64. This is its highest closing since October 24 last year when it settled at 28,179.08. It had shot up about 504 points intra-day.

The broad-based Nifty was also on the upswing and rallied by 155.10 points, or 1.81 per cent, to settle at 8,716.40 after touching the day's high of 8,722.40 and a low of 8,537.50. The rupee firming up 40 paise to end at 67.47 -- a one and a half month high -- helped pace the gains. "No change in long-term capital gains tax on equities has lightened investors' fears on transaction cost.

The budget has given a positive momentum in the market, the focus of which was to reduce fiscal deficit to 3.2 per cent of GDP in 2017-18. Infrastructure developments are welcomed by the investors," said Vinod Nair, Head of Research, Geojit BNP Paribas Financial Services.

Meanwhile, Nikkei Markit India Manufacturing PMI in January rebounded from the demonetization downturn amid rising order books, production as well as buying levels and expansion in the sector by increasing to 50.4, from 49.6 in December. Shares of state-run banks such as SBI, Union Bank of India, Bank of Baroda, PNB and Syndicate Bank hogged limelight and climbed by up to 5.64 per cent as the government announced infusion of Rs 10,000 crore in public sector banks in the next fiscal.