Digesting the fine print

The day after the big b-day rally, markets gave up some of the gains as expected. The initial euphoria died as many analysts came out with more sober opinions on the budget. The 'devil in the details' came out overnight and yesterday's big winners in banking, and oil and gas sectors took a beating.

There was all round dissatisfaction about the reduction in depreciation benefits for plant and machinery as well as the move to tax fringe benefits at the hands of the employer. These two steps are widely perceived to take away the benefits of reduction in corporate tax rates. Foreign brokerages CLSA and Merrill Lynch came out with post-budget outlooks which were less than enthusiastic.

Both maintained their general outlook on the economy and the markets but complained about the lost opportunity for grand measures and absence of disinvestment plans. Citigroup maintained the growth target for the coming year at 7.5 per cent. Rating agency Fitch, retained the country's sovereign and foreign exchange rating while expressing some disappointment on the budget and fiscal targets. Standard & Poor's (See: ) also expressed disappointment over the fiscal condition.

The Sensex closed at 6651, down 63 points and the Nifty at 2084, down 19 points. Nifty futures closed at a discount to the spot index.

US markets remained weak yesterday on firm oil prices. Indian ADR's were a mixed bag. ADR's of HDFC Bank, ICICI Bank, Tata Motors and Wipro ended with gains while Infosys, Satyam and VSNL closed in the red.

RBI came out with the detailed banking roadmap as promised by the finance minister in his budget speech. The roadmap is more in line with the conservative views expressed earlier by the RBI governor than the more liberal views by the finance ministry. The overriding principle seems to be achieving a well diversified ownership structure for banks. Shareholding by a foreign bank in an Indian bank is limited to 5 per cent. Foreign banks can set up fully owned subsidiaries and can expand the existing branch network. Corporate houses will be allowed to own up to 10 per cent in Indian banks. SBI indicated at more acquisitions, both overseas and domestic, while expressing disappointment in not increasing FII investment limits. Bank stocks lost most of yesterday's gains. ICICI Bank lost close to 3 per cent, SBI lost 3 per cent and HDFC Bank lost close to 2 per cent.