Updated on
Summary
Indian shares extended losses to 6 percent on Monday afternoon as a higher fiscal deficit set by the budget-disappointed investors. Bond yields spiked 16 basis points after Finance Minister Pranab Mukherjee said the fiscal deficit for 2009/10 was expected to rise to 6.8 percent of gross domestic product from 6.2 percent in the last fiscal year. Markets had expected the government to announce a fiscal deficit of up to 6.5 percent of GDP as it ramped up borrowing to pay for additional spending. Index heavyweight Reliance Industries (RELI.BO: Quote, Profile, Research) led the index losers and was trading down 6.5 percent at 1,893.5 rupees, followed by ICICI Bank (ICBK.BO: Quote, Profile, Research) that dropped 9.3 percent to 684.2 rupees. The 50-share NSE Index NSEI was down 6.05 percent at 4,156.75 points. Investors feel the budget didn't provide enough benefits for the industry. Whatever was desired has not be given (in budget). People were expecting a lot. Some benefits have been given but that are not sufficient. That's why market has gone down, said Kalyan Dhadhi, an investor in stocks and shares. Mukherjee, presenting the first budget after the Congress-led coalition was re-elected with a stronger mandate in May, outlined measures to speed up infrastructure development and proposed to increase spending for farmers and the poor. Market analysts feel that the loss in Indian share is a knee-jerk reaction from the market. See the thing is this is a knee-jerk reaction from the market. Market had built-up huge expectations and they were expecting some policy decisions. But what the market does not realize is that budget is more of an accounting statement than policy announcement statement so this knee-jerk reaction is understandable, said Sunil Dutt, a market analyst. The main stock index fell as much as 5.1 percent after the finance minister ended his speech, after gaining more than 1 percent in morning trade ahead of the budget. The partially convertible rupee fell to 48.50 per dollar, its lowest since June 26 and compared with Friday's close of 47.89/91. It was later trading at 48.3. The yield on the benchmark 10-year bond was at 6.99 percent, 16 basis points above Friday's close. Bonds had priced in expectations the fiscal deficit would widen to between 6.25-6.5 percent of GDP in the fiscal year ending in March 2010. The government set the gross borrowing target for 2009/10 at 4.51 trillion rupees ($93.4 billion) above 3.95 trillion rupees forecast in a Reuters poll last week.
