General Budget Reactions:
Mrugank Paranjape, MCX MD & CEO:
- “The Government’s focus and thrust on agriculture is captured succinctly in its reiteration of the objective of doubling the income of farmers. In this context, the recognition about commodity derivatives (i.e. futures & options) and expansion of the repository framework (under WDRA) as an integral / crucial part of the institutional mechanism that the government (along with NITI Aayog) intends to utilise for optimal price realisation of farmers, is very encouraging for the futures markets as well as the healthy development of commodities ecosystem.
- At MCX, it offers us the opportunity to expand our basket of agricultural commodity contracts as well as strengthen our reach in several commodities where MCX already serves the value chain of participants viz. in cotton, crude palm oil and plantation crops. Our engagement with FPOs / FPCs and aggregators will be deepened further. Measures announced to strengthen the FPOs will encourage them to broad-base agricultural marketing efforts besides using commodity derivatives to ensure remunerative prices.
- The clarity now with option on commodity derivatives being included in the definition of taxable commodity transaction, the proposed rate of CTT (with effect 1st April 2018) on sale of option on commodity derivative where option is exercised at 0.0001% (by purchaser), will promote wider participation on the exchange in terms of popularising the newly launched Options. Further the amendment to section 43(5)(e) of the Income-tax act, extending the benefit to agricultural commodity derivatives, is positive.
- We keenly look forward to the details and modalities under the comprehensive Gold policy wherein the intent is to develop Gold as an ‘asset class’. A regulatory structure for the (proposed) Gold exchanges had been represented by MCX and long awaited, especially given our positioning in bullion derivatives and our ability to capitalise / leverage the existing participation by the entire value chain (in bullion) on MCX.
- The massive formalisation of businesses of MSMEs that the Hon. Finance Minister referred to, is another opportunity, albeit, over the next few years for commodity exchanges, as it will enlarge the audience / participant base in our country who would start looking at hedging, as these entities become more inclusive and organised.”
The finance minister presented his fifth budget which is well balanced. Markets as expected were very volatile. The long awaited relief for Middle class was refused and a 10% tax on Long term capital gains was introduced which may dent the AMC companies a little in short run. The Government is clearly tapping the capital Markets for additional revenue which would net in around Rs. 20k Crore in government’s kitty. Clear winner was agriculture sector which got Big reliefs from the government. The increase in MSP prices offered to farmers and big investment boost in agriculture allied products. Additionally, we may see certain pick up in gold demand coming from rural sector. The major expenditure has gone into National health mission with aim of providing healthcare to the weakest part of Society. We draw big relief from less than expected borrowing program by government.
The Finance minister has divestment target of Rs, 80, 000 Crore. Minister has also assured of expenditure in connecting the regional air connectivity which may be a boon for Indian Aviation sector. The focus in defense sector has been on manufacturing as inferred rather than boosting the purchases. The increase in customer duty from 15 to 20% in mobile manufacturing would net in additional funds for the government. We believe budget was a well-balanced act by the current government consider now such free lunch and bog sops before the looming national election and major state elections. This budget should rather boost the corporate earnings and stir rural demand to additionally benefit the economy.
Nifty Futures closed at 11033 post a choppy session. It ended negative 21.50 points below its previous close. It was indeed a volatile session with a daily range of over 250 Points. Earlier in the day, Nifty shot up to 11140 levels but fell sharply as Finance minister announced the 10% tax on LTCG. Nifty Futures were trading at highs during the early sessions. Today’s range was not fruitful for most traders as markets ended flat without establishing a new trend. Advance to decline ratio stood at 27 to 23. All sectorial index ended on negative note except for FMCG and AUTO sector index.
The volatility index fell sharply by -11.44% which cushioned the markets against any increase in downside fear. Nifty had a big Candle which ended on a narrow range and a long tail. We expect the markets to be consolidating for next few trading sessions. The fall in fear index does provide a sigh of relief from downside but investors have to be cautious how market plays out in coming sessions. The upward bias remains same with a cautious approach. Resistance comes at 11100/11140. Downside support comes at 10980/10900.