The budget 2021 has been a boon for the equity market as there has been no increased tax rates and an increased expenditure on part of the government. Proposal of disinvestment of 2 PSUs including LIC and formation of bad banks has led to Bank Nifty soaring to new heights.
Budget and the Bourses
On 1st February 2021, Finance Minister Nirmala Sitharaman had presented Budget 2021 & on the very same day stock market went up by 2300 points. What could be the possible reasons for the same?
Stock markets react to news and especially on Budget day, there is a lot of volatility. The Union Budget 2021 has made many significant announcements for sectors like insurance, Banking, Automobile, Textile, Health, and many more. There were rumors that the government is considering raising revenue through LTCG & STCG by raising the rates but thankfully the government didn’t do so. On the other hand, the government decided to raise money through the stock market by disinvestment (target of 175,000 crores) and privatization. But, the real challenge is in the implementation of the same as the past trends show that the government is hardly able to meet its divestment targets.
With the news of increased FDI limit in the Insurance sector from 49% to 74%, the insurance sector shares rallied 4%. The FM has fulfilled a long-standing ask of the insurance sector. This will not only infuse the much need capital in the sector but also lead to penetration of insurance in India. This would also promote the setting up of new companies, which would increase competition and diversify options available to the customers.
The salient performer was Bank Nifty as it had soared 10% post Budget. The reasons were the introduction of Bad Banks. Under this, there would be the formation of Asset Reconstruction Company Limited and Asset Management Company which would take up all stressed debts of the bank and dispose of them to Alternate Investment Funds for further realization. Another reason was a 137% increase of Capex and the formation of Development Financial Investment which would work as a catalyst for infrastructure financing. The increased FDI limit also had a role in the hike of Bank Nifty.
Shares of the automobile sector rose 6% after the announcement of The Vehicle Scrappage Policy. The policy provided an incentive to the people to exchange old vehicles which would promote fuel efficiency and reduce air pollution. The automobile sector had seen its worst slump during the pandemic and there were zero sales in April 2020. To accelerate the automobile sector government has introduced Vehicle Scrappage Policy. But it would have been even better had the policy been mandatory. Nevertheless, even voluntary policy will also boost sales. The pharma sector has been among the top gainers post-budget. The government has announced a 35,000 package for Covid & an incremental 137% health expenditure. But as the pharma sector had gained 60% in 2020 there was less scope in the present. ITC has also surged due to the non-imposition of any new indirect taxes Textile sectors were also on a boom due to the proposition of constructing seven mega textile parks in India.
The budget 2021 has been a boon for the equity market as there have been no increased tax rates and increased expenditure on part of the government. Proposal of disinvestment of 2 PSUs including LIC and formation of bad banks has led to Bank Nifty soaring to new heights. To conclude with the investors were all thumbs up for the budget 2021, most of the stocks closed in green, on a historical note benchmark indices Sensex and Nifty closed 5% higher post Budget.