In hindsight, investors who stayed away from the budget session of the stock market this week were wise. They avoided unnecessary fluctuations in their blood pressure.

Cautious budget

With an overarching social focus in the first half of the budget speech, it was difficult to gauge if the second half contained a googly on long-term capital gains or corporate taxes. The market spent the pre-lunch hour in two-way movements.

The second half brought disappointment on the proposals, not because the capital gains proposal was announced (it wasn’t), but because there were very few sops for the demonetisation-hit sectors of corporate India. The cut in corporate taxes was restricted to companies earning less than Rs 50 crore in annual revenues, which are hard to come by in the listed space. The big picture numbers on the budget, which show a 6.5 per cent increase in total expenditure, do not point to much spending stimulus to the economy either.

Still happy!

But in keeping with the recent euphoric mood, the markets ended budget day 1.8 per cent higher. This seemed to be a relief rally. The one big positive takeaway from the budget and one that should wake up rating agencies (if they are unbiased, that is), is that it decided to stick to a tight 3.2 per cent (of GDP) fiscal deficit for FY18.

The FM also clarified that the contentious CBDT circular on indirect transfer provisions wouldn’t apply some of the long-term FPIs (Category 1 and Category 2). The FM not changing the long term gains provisions for listed equity brought some relief too.

With early bird results from India Inc showing limited impact from demonetisation, the markets hope that India Inc will bounce back on its own.

Whirlpool of India’s results on Friday after market close, reaffirmed this view, with the appliance maker managing a 45 per cent jump in profits on a 1 per cent gain in sales. The company had positive commentary on its outlook expecting the “tailwinds from good monsoon, pay commission etc to resurface soon”.

Realty! Really?

But analysts tracking sectors such as realty, banking and FMCG are still quite puzzled at the gains in these stocks. Post-budget analysis of proposals for these sectors show that listed players in these sectors haven’t won any big bonanza in the budget.

On real estate, the budget had bigger outlays and relaxations in tax breaks for affordable housing under the Pradhan Mantri Awas Yojana. But as this covers homes with loan sizes of upto Rs 12 lakh, it is unlikely to benefit listed realty players or home loan companies.

A report by Kotak Institutional Equities pegged the budget as marginally negative for larger real estate companies and home loan NBFCs because of their focus on higher end homes and bigger ticket loan takers. On PMAY disbursements it noted – “Back of the envelope calculation suggests that loans under this scheme comprised 0.3-0.6% of housing finance disbursements in FY2016 and FY2017 respectively; this will likely increase to 1.9% of industry disbursements in FY2018.” So much for a big break!

Instead, the FM’s move to curtail the notional ‘loss’ from house property to Rs 2 lakh a year for second and subsequent homes, will hit demand for property and home-loan growth and thus be negative for home loan NBFCs, it notes. It remains to be seen if reality dawns on the stocks of real estate biggies in the coming week.

Banks didn’t have much to cheer either , as the Centre’s willingness to recapitalise PSU banks remains under a cloud. The allocation of Rs 10,000 crore for recap is less than half last year’s and a fraction of the projected requirement.

For FMCGs, the Rs 15,500 crore gross handout on personal taxation is too small to deliver any kicker to urban consumption and the surcharge reduces that by Rs 2,700 crore. While rural allocations in the budget are up smartly by about Rs 36,000 crore, much of this is expenditure on infrastructure building which will not put more money directly in the hands of rural consumers. So it is up to the South West monsoon and MSPs to save the day in the coming months.

New ideas

Budget or no budget, the week saw animal spirits returning to the market with some big moves in select stocks, based on corporate events. Idea Cellular has managed a hefty 40 per cent this week on reports of merger talks between Vodafone’s Indian business and this Aditya Birla group telecom major. Concrete details such as the likely swap ratio or deal structure were unavailable.

But as these are the second and third largest pan India players, the hope was that thus mega marriage , which will result in 395 million subscribers for the entity, would thwart the aggressive Reliance Jio, reduce future spectrum fees and deliver a boost to the combined margins. But there are many hurdles to negotiate, including anti-trust laws that cap spectrum holdings by a single player in each circle.

The Sun TV stock, always prone to big moves jumped 25 per cent on Friday after the promoters were cleared in the Aircel-Maxis case by a special court. Some brokers put out buy ratings on the stock citing its low valuations (18 times) relative to Zee Entertainment (over 30).

BSE rings the bell

The BSE made a splendid market debut on its rival NSE on Friday, with the stock listing at Rs 1085, a 35 per cent gain on the offer price of Rs 806 . The listing gains exceeded grey market ‘expectations’ of a Rs 200 per share gain by a big margin, going to show that one should take the grey market with a pinch of salt.

Two factors may have propped up listing gains. One, the exchange business is high-margin and high free-cash-flow generating. With rival NSE bogged down by governance problems, BSE as the first-mover made the most of the scarcity premium for this interesting business. Two, the promoters were modest in their ambitions and priced the offer (about 17 times expected earnings) to leave some money on the table.

The good news is that the IPO market has still not reached a frenzied state and therefore retail investors stood a good chance of getting their hands on this heavily over-subscribed offer. Roughly one in four retail applicants bagged allotments in the offer. While the retail quota of the IPO was over-subscribed about 6 times, the non-institutional and QIB quotas saw bids for 159 times and 48 times. But if a couple of more issues behave like BSE, the retail frenzy will surely start.

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