Indian business mildly positive about budget

Indian business broadly welcomed a budget that contained few surprises but lacked the sort of big push on reform necessary to disperse the clouds over the countries’ markets.

The benchmark Sensex index, which had declined by 13.7 per cent this year, rose by up to 3.2 per cent as Pranab Mukherjee, finance minister, delivered his budget speech, before falling back to close up by less than 1 per cent.

Govind Sankaranarayanan, chief financial officer of Tata Capital, the financial services arm of the Indian conglomerate, said: “Overall, most parts of industry should not be unhappy with this budget”.

The combined effect of souring sentiment towards emerging markets internationally and concerns over corruption scandals and stubbornly high inflation at home have weighed on Indian markets since late 2010.

The surge in oil prices brought on by convulsions in the Arab world added to unease that saw the Sensex suffer its steepest one-day fall in 16 months on Thursday.

While Mr Mukherjee’s plans calmed investors’ pre-budget nerves, it added little detail to expectations that the government would lift caps for foreign investment in sectors such as retail and insurance.

Rujan Panjwani, president of Edelweiss Capital, a Mumbai-based financial services group, said: “It was not a bad budget but for a change in mood you need some mega-shift to happen”.

Analysts and executives were cheered by the government’s commitment to trim the fiscal deficit to 4.6 per cent of gross domestic product this year from an estimated 5.1 per cent last year, even if there were some questions as to whether the target was realistic.

Jairaj Purandare, executive director in India at PwC, the auditor, said: “Given the backdrop of what’s been happening in the country these past few months, I think the finance minister would have been under great pressure to give in to different lobbies.

“Overall, he’s done a pretty good job.”

Ridham Desai, Morgan Stanley’s India strategist, welcomed as the budget’s “biggest positive impact on sentiment” the decision to allow foreigners who meet the market regulator’s “know-your-customer” requirements to invest in domestic mutual funds.

He said in a research note: “This opens up a new source of funding for the current account deficit as well as for Indian equities”.

Analysts also welcomed a doubling to $40bn the limit on foreign funds’ permitted holdings of Indian corporate bonds, as well as changes to taxes on dividends to encourage companies with foreign subsidiaries to repatriate profits.

There was, however, doubt for some sectors.

The IT industry, a mainstay of Indian international expansion, saw no extension of a tax holiday for software parks and no clarification on rules for services exporters, in what Ernst & Young described as a “dampener” for the sector on a day of otherwise good news.

Arun Nanda, a regional chairman of the Confederation of Indian Industry, summed up business reaction with his verdict: “Overall: better than we had expected.”