Union Budget swings markets into positive zone
Although the week commenced on a shaky note on account of domestic news flows, the Union Budget 2010-11 presented on Friday, last week, pushed markets into positive zone. The Finance Minister’s proposed market friendly measures including reduction in surcharge on corporate tax, lower fiscal deficit projection, roadmap for rollout of goods & service tax (GST) and direct tax code (DTC), among others. Derivatives contracts for February 2010 series also expired last week, with around 76% positions got rolled over to March 2010 series and around 68% Nifty positions moved to March 2010 contract. Sensex at the close of the week rose 1.47% and Nifty rose 1.6% to end the week. The BSE Mid-Cap index was down 0.54% and the BSE Small-Cap index declined 1.67% underperforming the larger indices.

Annual Budget 2010-11 manages expectations
The Finance Minister laid emphasis on roadmap for reducing fiscal deficit in coming few years, improving investment environment, inclusive development and strengthening transparency and public accountability in the budget presentation before Parliament for 2010-11. Few of the main highlights are:
1) New banking licenses for the non banking finance companies.
2) Fiscal deficit estimated at 5.5% of the GDP in FY11 versus 6.9% in FY10.
3) Divestment target of Rs.40000Cr. in FY11 versus Rs.25000Cr. in FY10.
4) Central Excise on petrol and diesel raised by Re.1 a litre.
5) Income tax slabs have been revised with new slabs being, 10% taxes on income above Rs.160,000 but upto Rs.500,000 and 20% for income between Rs.500,000 & Rs.800,000 and 30% above Rs.800,000.
6) MAT hiked from 15% to 18%.
7) Surcharge for domestic companies cut from 10% to 7.5%.
8) 5% custom duty hike on crude oil.
9) GST, DTC likely to be implemented from April 2011
The Rail Budget, which was announced earlier this week laid emphasis on the social responsibility and financial viability. The Rail Minister kept passenger fares as well as freight rates unchanged. The freight rate for food grains and kerosene was cut by Rs.100 per wagon. The rail budget proposed Rs.41426 Cr, the highest ever planned investment, to provide efficient, customer focused and modern railway network.

Economic Survey 2010 projects robust growth next fiscal

The Economic Survey 2009-10 that was declared last week appears to be bullish on growth. While GDP growth is expected at 7.2% this year in line with the CSO (central statistical organisation) projection, the real GDP growth expectation for next year is put at 8.5% (FY11) and at 9% in FY12. The Survey talks of the worry of food inflation spreading to a more broad based level and hence the necessity of monetary policy to manage demand led inflation. Hence clearly the Finance Ministry is in support of a tighter monetary policy and the key focus is now on managing inflation with the growth trajectory being back on track.

Food Inflation eases to 17.58% for the week
The annual Wholesale Price Index-based food inflation eased to 17.58% for the week ended February 13 against the previous week's annual rise of 17.97%. The moderation in the inflation rate, after having increased for four consecutive weeks, was mainly on account of lower price levels in primary items such as pulses and vegetables. The inflation for primary articles including food and non-food items in raw form slowed to 15.84% during the week from 16.23% a week ago. While pulses dropped by 1% over the week, inflation in vegetables was down 5.7%.

DB Realty disappoints on listing
The stock of DB Realty got listed on the NSE at Rs.452.10 as against its initial public offer (IPO) price of Rs.468. The stock touched an intra-day low of Rs.412.45 and settled at Rs.455.05 at days end. A total of Rs.1500 Cr. was raised through the share offering, which was subscribed 2.95 times. The proceeds would be utilised towards new projects, pre-payment of loans and general corporate purposes. DB Realty focuses on residential, commercial, retail and other projects such as mass housing and cluster redevelopment in and around Mumbai. The stock at weekend closed at Rs.439.40, down 6.1% to its issue price.

IPOs of Man Infra and United Bank gets overwhelming response from investors
Man Infraconstruction’s IPO got an overwhelming response from the investors as it was oversubscribed 62.53 times. This is highest number of times that an issue has been subscribed after the Reliance Power issue in January 2008, which was subscribed 72 times. The issue, through which Man Infra planned to raise around Rs.142 Cr, received bids for 29 Cr shares against the 46.53 lakh shares on offer. The price band for the issue was Rs.243-252. The portion reserved for qualified institutional buyers (QIB) was subscribed 96.06times; that for high net worth individuals (HNIs) 104.57 times and retail 10.26 times. The initial public offering of a government owned United Bank of India, which closed on Thursday, also got an oversubscription of 33.38 times. The reserved portion of qualified institutional, retail and non-institutional investors got subscribed 47.08 times, 9.8 times and 39.15 times, respectively. The price band was fixed at Rs.60-66 per share. On the other hand the Rural Electrification Corporation (REC) follow-on public offer (FPO) got subscribed 3.14 times.

FIIs remain buyers, Domestics were marginal sellers
FII were big buyers to the tune of Rs.1643 Cr in the cash segment and were buyers to the tune of Rs.1047.5 Cr in the F&O segment for four days of trading last week. Domestic MFs were sellers to the tune of Rs.6.8 Cr for four days of trading last week.

Going Forward
Government in the union budget seems to have focused on consumption led growth. It is also trying to manage fiscal situation by broadening & rationalizing the tax base and the tax structure. As far as the direction of the market is concerned, after the initial euphoria of the Union budget markets are likely to focus back their attention on both global and local issues. Inflationary environment is something the market will get increasingly worried about as fuel price inflation also kicks in after the government action last week. Any news on the European debt situation further deteriorating may have further adverse effects on the markets. The buoyancy of last week may slowly fade away as selling emerges at higher levels. Markets are likely to be in a range in the short term.

WPI – Inflation
The annual Wholesale Price Index-based food inflation eased to 17.58% for the week ended February 13 against the previous week's annual rise of 17.97%. The inflation for primary articles including food and non-food items in raw form slowed to 15.84% during the week from 16.23% a week ago. While pulses dropped by 1% over the week, inflation in vegetables was down 5.7%. The Fuels group index remained unchanged at its previous week's level of 9.89%.

US treasuries
The US treasuries traded in the narrow range of 3.65% - 3.80%. The US 10yr prices rose as Ben Bernanke pledged that he would keep rates record low for a long time. Prices also rose after reports that existing home sales fell in last month and forth quarter consumer spending raised less than
expected. The 10yr closed at 3.77%.

Outlook
Liquidity was ample during the current week. CBLO was around 3.00% - 3.10%. Call rates were in the range of 3.20-3.25%. Banks lent on an average Rs. 64000 crs. to the RBI. The 25bps hike in CRR will come in effect from 27th February 2010, which will suck out liquidity to the tune on 12000crs.
The RBI has announced T-Bill auction worth Rs. 6000 Crs. The 10yr Gsec traded in the in the band of 7.75%-7.85%. The Government has announced a net market borrowing of Rs. 3.45 Lac crs. We expect 10yr to trade in the band of 7.85%-7.95%.

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