NIFTY CUTS LOSSES ON “FISCALLY PRUDENT” BUDGET; 7090 IS THE IMMEDIATE HURDLE

NIFTY CUTS LOSSES ON “FISCALLY PRUDENT” BUDGET; 7090 IS THE IMMEDIATE HURDLE

WORLD MARKETS                             

US indices reversed gains made in morning session to end lower by about three fourth of a percent

This was despite a rise in Nymex oil which settled up 97 cents or 3% at $33.75 a barrel. Brent rose 87 cents or 2.5% to $35.97.

Chicago PMI came in at 47.6 in February, missing expectations and dropping from 55.6 in January. Pending home sales fell 2.5% in January, versus expectations for a slight gain.

Earlier Shanghai Composite ended lower by 3%. After China's market closed, the People's Bank of China cut the reserve requirement ratio (RRR), the amount of cash the country's bank have to hold, by 0.5%. The cut was the first since October and the fifth since last February.

European markets, except a 0.2% lower DAX and flat FTSE, gained 0.8%-1.3%. Basic resources sector rallied the most following PBOC move. Eurozone inflation fell to negative 0.2% in February, boosting expectations of more policy easing when the ECB meets on March 10.

Gold rose $14 to $1234 an ounce.

For the month, S&P500 and Nasdaq lost 0.4% and 1.2% respectively in their third straight month of decline. Dow managed to gain 0.4%. Nymex oil gained 0.4% for February, its first positive month since October. Gold gained 11%.

AT HOME

After gyrating between a massive 4% intraday range on account of Union Budget, benchmark indices ended lower by about six tenth of a percent. Sensex settled at 23002, down 152 points while Nifty lost 43 points to finish at 6987. BSE mid-cap and small-cap indices ended little changed. BSE IT and Teck indices tumbled 2.1% and 2% respectively, becoming top losers among the sectoral indices while Bankex and Finance indices were the top gainers, up 1.1% and 0.9% respectively.

Presenting his second full-fledged budget, Arun Jaitley adhered to fiscal consolidation roadmap by proposing to keep the deficit at 3.5% of GDP in 2016-17. Total government expenditure in next fiscal would be Rs 19.78 lakh cr out of which plan expenditure would be up 15.3% at Rs 5.5 lakh cr while non-plan expenditure is estimated at Rs 14.28 lakh cr. FY17 food subsidy has been pegged at Rs 1.35 lakh cr while petroleum subsidy is expected at Rs 26900 cr.

FM reduced the Long Term Capital Gain period for unlisted companies to 2 years from 3 years but made no changes for the listed companies which was a positive from stock market perspective.

A 0.5% Krishi Kalyan Cess has been imposed on all taxable services effective June 1, 2016. However this was less than the 2% hike expected in the service tax.

On the flip side, Rs. 25000 cr were provided for the recapitalisation of public sector banks which fell short of market expectation. Corporate tax was cut to 29% for companies with turnover less than Rs 5 cr. which too fell short of expectation. Also dividend income of Rs 10 lakh or more will now attract a 10% tax and the surcharge on people earning more than Rs 1 cr has been upped to 15% from 12%.

FY17 strategic sale has been expected at Rs 20500 cr while the divestment target has been set at Rs 36000 cr.

Other key announcements include reduction in cess on crude from Rs 4500/MT to 20% ad valorem, raising the cess on coal, lignite and peat from current Rs 200 a tonne to Rs 400 per tonne. Also 1% infra cess on small petrol/LPG/CNG cars, 2.5% tax on sub-4 metre diesel cars and 4% tax on higher capacity sedans, MPVs and SUVs has been proposed.

While making no change in personal Income Tax slabs, FM announced deduction for additional interests of Rs 50,000 per annum for loans up to Rs 35 lakh sanctioned in 2016-17 for first time home buyers, where house costs does not exceed Rs 50 lakh.  Jaitley also proposed to increase the limit of deduction of rent paid from Rs 24,000 per annum to Rs 60,000 spelling respite to those who don’t own any house and live in rented accommodation. For those earning less than Rs 5 lakh per annum, FM announced to raise the ceiling of tax rebate from Rs 2000 to Rs 5000 giving an additional relief of Rs 3000 in their tax liability.

FIIs net sold stocks worth Rs 2018 cr but net bought index futures and stock futures worth rs 668 cr and 629 cr respectively. DIIs were net buyers to the tune of Rs 784 cr.

Rupee appreciated 20 paise to end at 68.425/$.

OMC cut petrol price by Rs. 3/litre while hiked diesel price by Rs 1.47/litre.

OUTLOOK

Today morning Asian markets are trading mixed with changes of upto half a percent and SGX Nifty is suggesting about 50 points higher opening for our market.

Yesterday, after making a fresh 52-week low of 6826, Nifty rebounded sharply to 7095 but fell from there to end at 6987.

Yesterday was the last day of February and that's why 6826, the low made yesterday, which is also the monthly low, is a very important support to eye. Also, Nifty has closed below the lower band of monthly bollinger, which last happened in December 2011 when Nifty had made a low of 4531. The nearest support to eye if 6826 is broken would be 6650, where the 61.8% retracement level of the entire 5119-9119 upmove is placed.

On the way up 7090, the 61.8% retracement level of the recent 7252-6826 fall, which also coincided with the top made yesterday, is the immediate hurdle, upon sustained trading above which 7252 would be the next target to eye.

Traders are advised to wait for the sustained crossover of 7090 for taking long position in Nifty.