Sensex trims gains as budget euphoria recedes

Indian shares closed firm, but way off their intra-day highs, as the initial euphoria over a better-than-expected budget was swiftly overshadowed by near term macro-economic concerns and soaring crude oil prices. Market was expecting that the finance minister would announce a populist budget in view of the upcoming elections in key states.

The 30-share Sensex vaulted more than 500 points intra-day after the finance minister set lower targets for fiscal deficit, subsidies and market borrowing. Brokers said the rally was triggered by short covering of positions, but ran out of steam as there was not much buying support at higher levels. They said foreign fund flows and crude oil prices would decide the market trend in the short run. High oil prices would push up the country's oil import bill, and make it harder for the finance minister to stick to his fiscal targets for FY12.

The Sensex closed at 17823.40, up 122.49 points or 0.7% over the previous close. The 50-share Nifty index closed at 5333.25, up 29.70 points or 0.6% over the previous close.

ITC led the charge among large caps, rising 8.5% to close at Rs 169.50, after excise duty on cigarettes were unchanged. The stock had fallen in the run-up to the budget as market players were expecting the excise duty to be hiked.

Maruti Suzuki and Mahindra & Mahindra were the other prominent gainers among index components, rising 5% and 3% respectively. These stocks too had underperformed recently on worries that the budget would levy an additional excise duty on diesel cars.

Investors, however, continued to take a cautious view of second line shares. The BSE Midcap Index closed a modest 0.3% higher at 6373.23, as investors chose to book profits rather than hold on to their positions. Mid and small cap shares have taken a beating in the recent market downtrend, trapped in a vicious cycle of falling share price and low liquidity.