The Indian stock market saw some weak spells last week (25 February - 1 March, 2013), as concerns about slowing economy, a somewhat disappointing budget, and some weak economic data from other parts of the globe hurt sentiment and prompted investors to press sales in several large, medium and small cap stocks.
As stocks plunged, the benchmark indices Sensex and Nifty breached some crucial support levels and ended at multi-month lows. While the Sensex ended the week with a loss of almost 400 points or over 2% at 18,918.52, the Nifty closed lower by 130.60 points or 2.23% at 5719.70. The BSE Midcap and Smallcap indices lost around 4.3% and 5.6%, respectively.
After a choppy session, the market ended marginally up on Monday. But then, stocks declined sharply on Tuesday, after the Railway Minister Pawan Kumar Bansal hiked freight tariff, announcing a fuel adjusted component linked revision for freight tariff, while presenting the rail budget. The Sensex plummeted over 300 points that day.
Stocks rebounded on Wednesday amid slightly easing worries about the economy after the Economic Survey tabled in Lok Sabha stated that the economy will see a growth of 6.1% - 6.7% in fiscal 2013-2014. The Sensex spurted 137 points.
After opening on a firm note on positive global cues, the market switched track and plunged sharply into the red on Thursday after the Finance Minister, unveiling Union Budget for 2013-2014, hiked the surcharge on corporate tax to 10% for companies with a taxable income of over Rs 10 crore per year. He also raised the surcharge on dividend distribution tax to 10%. Negative reaction to proposals such as super rich tax, customs duty on imported cars, higher excise duty on SUVs and the decision to continue interest rate subsidy on short term crop loans too contributed to the sell-off. While the Sensex went down by 291 points, the Nifty closed lower by 104 points.
On Friday, stocks posted modest gains, despite a shaky start and some listless spells during the session. A clarification from the finance ministry with regard to continuation of the double-tax treaty with Mauritius lifted sentiment to an extent. Some bargain hunting too helped. The Sensex moved up by 57 points.
Only six stocks out of the 30-stock strong Sensex ended the week on the positive side. IT stocks Infosys, Tata Consultancy Services and Wipro gained 4% - 6%, thanks largely to a weaening rupee.
Reliance Industries lost over 6%, following the finance minister hinting at a change in oil & gas exploration policy, on pricing as well as profit sharing fronts.
Bank stocks saw some heavy selling on Budget day after the finance minister said that the interest subvention scheme for short-term crop loans will be continued and a farmer who repays the loan on time will be able to get credit at 4% per annum. Also, the minister proposed to extend the scheme to crop loans borrowed from private sector scheduled commercial banks in respect of loans given within the service area of the branch concerned.
Among top banks, ICICI Bank ended 3.2% down and HDFC Bank lost 5.8%, while State Bank of India declined by 4.8%.
Metal stocks tumbled. Hindalco, Sterlite Industries, Tata Steel and Coal India ended lower by 4% - 8%, while Jindal Steel & Power bucked the trend and posted a modest gain.
HDFC (3%) and Dr Reddy's Laboratories (4.5%) were among the other major losers last week. Amid mixed sales reports, Maruti Suzuki ended lower by a little over 1% and Mahindra & Mahindra lost around 0.7%. Among two & three-wheele makers, Bajaj Auto gained 1.5%, while Hero Motocorp lost nearly 2%.
IT stocks rose on weak rupee. A weak rupee boosts revenue of IT firms in rupee terms as the sector derives a lion's share of revenue from exports. The rupee fell on the back of weak growth data for the October-December quarter and tracking losses in the euro. The pair was trading at 54.89 on Friday, 1 March 2013 from its close of 54.36/37 on Thursday, 28 February 2013.
According to a business survey released on Friday (1 March), Indian factories stepped up production in February, as domestic orders poured in at a faster pace than in the previous month. The HSBC Markit manufacturing Purchasing Managers' Index rose to 54.2 in February, after falling to 53.2 in January.
During his budget speech, the finance minister P Chidambaram stated 'the country's economy is recovering, and that retaining high growth is a top priority'. The FM sought support to navigate the economy, which has slowed down since 2010 and said that controlling inflation and fiscal deficit is the main aim. He stressed the need to cut spending to control inflation.
The FM proposed a 30% rise in FY 14 expenditure, which is now pegged at Rs 16.44 lakh crore. Allocating Rs 21,000 crore for national health mission, an increase of 24%, the finance minister set aside Rs 37,000 crore for healthcare.
For education, an allocation of Rs 65,000 crore has been made in the budget. Allocation for education was hiked by 17%. Realty stocks saw some buying after the finance minister proposed additional interest deduction on housing loan, but retreated later.
Stating that fiscal consolidation cannot be restored only by cutting expenditure, the finance minister imposed an additional surcharge on individuals earning over Rs 1 crore. The individual income tax slabs have been left unchanged.
The finance minister cut the Securities Transaction Tax on equity futures trades to 0.01% from current 0.017%. The STT on redemption of mutual fund units/exchange traded funds (ETF) at fund counters has been cut to 0.001% from 0.25%. The STT on sale of MF/ETF units via the stocks exchanges has been cut to 0.001% from 0.1%.
The government has set a target of Rs 40,000 crore from divestment of government stake in state-run firms and Rs 14,000 crore from divestment of stake in non-government companies for FY 2014.
According to the data released by the government on Thursday (28 February), India's gross domestic product grew 4.5% in the October - December 2012 quarter, sharply slower than the 5.3% expansion reported in the September quarter. Manufacturing output in the October-December 2012 period rose 2.5% from a year earlier, while mining shrank 1.4%.