It's hard to take a call on the state of the markets in the short and medium term after the violent way it reacted to the finance minister's speech. Markets fell 869 points on the Sensex after opening strong at 14,962 points. Market participants are divided over their disappointment; some feel the markets over reacted, booking profits after last week's run up while the doomsdayers believes this is the worst budget ever.
Market expectations regarding the addressing of the fiscal deficit and some sort of roadmap on disinvestment and reforms fell through the floor. Mukherjee's speech clearly left more questions than
it answered. And the market is probably going to react to the lack of clarity and too many gray areas for some time to come.
Of course, there are positives that market participants will begin to realise over the next few days. The rural thrust will act as an impetus to growth in several sectors like FMCG. Many infrastructure companies will gain from the allocations to the NHAI and the like. In terms of corporates, this tax neutral budget has little impact on earnings barring the increase in MAT. Removal of the dreaded fringe benefit tax, which was on expected lines, is a positive as well.
Stocks that reacted badly, in particular, were banking stocks -- the BSE Bankex fell by over 8 per cent due to the lack of any announcements regarding banking reforms and the disinvestment of public sector banks. As analysts and market participants unravel the intricacies of the budget document, it is expected that the markets will stabilise after this massive slump. The real question remains regarding the bond markets. With the extent of government borrowing planned, liquidity and the cost of funds are expected to take a beating.