Markets Outlook: Pre-budget jitters to keep investors on edge

Monday, 24 February 2003, 08:00 Hrs
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MUMBAI: India's key share market index is expected to move within a close range in the week ahead with institutional investors adopting a cautious approach ahead of the presentation of the annual federal budget.

Finance Minister Jaswant Singh will present his annual fiscal package for 2003-04 in Parliament on February 28.

Dealers said investors would rush to pare their position on heavyweight counters in the days ahead on fears that the market would slump after the presentation of the budget if the proposals fail to meet expectations.

"The investors are expected to get into a cautious mode in the coming sessions as the market speculation on budget proposals reach a crescendo," said a broker with the Bombay Stock Exchange.

"Most of the blue-chip equities have soared sharply higher in the last few trading sessions on hopes of budget sops and the market is now ripe for a short-term correction," the broker added.

The blue-chip market index has plummeted sharply in the negative zone soon after the presentation of the federal budget in the last few years.

India's stock market barometer 30-share Bombay Stock Exchange sensitive index or Sensex closed on Friday at 3,307.20, netting a gain of 83.79 points or 2.6 percent over its previous week's close.

India's annual budget is expected to focus on attracting more investors in the sagging capital market by unveiling pro-market initiatives such as abolition of tax on dividend incomes.

Bruised investors also expect the budget to strengthen the market regulatory system and pave the way for conversion of stock exchanges into corporate entity with a view to motivate household savers to put their money in shares.

Analysts say the investors' demand to exempt dividends distributed by corporate houses from income tax in the hands of the recipients is likely to find favour in the forthcoming budget.

The government's decision to impose tax on dividends last year had dampened the market sentiment and evoked strong protests from small investors.

Analysts say the uncertainty over whether the U.S. will lead a military strike on Iraq will also keep investors on edge and dictate the market's direction in the week ahead.

The prospect of a war could move closer to reality next week with Washington and London planning to present a new resolution to the U.N. Security Council saying Iraq is in "further material breach" of a U.N. disarmament resolution.

Meanwhile, the U.S. and Britain continue to amass troops in the Middle East, with the U.S. saying it has enough troops in the region to attack Iraq.

Washington charges that Baghdad has failed to get rid of its weapons of mass destruction as required by the U.N. Security Council, but Iraq insists it has no such weapons.

"If the beating of war drums reaches its peak next week's then the budget talks will take a back seat in trading action," said a fund manager with a foreign brokerage firm.

In the intra-week trade ended Friday, the market opened sharply higher and kept surging higher for rest of the weekly trading sessions with investors rushing to pick up heavyweight counters on budget hopes.

In the old economy sector, Reliance Industries, India's largest refiner and petrochemicals maker, rose 1.7 percent over its previous week's close to 291.90 on speculation its recent telecom roll-out has received a good response.

Hero Honda Motor, the country's largest motorcycle maker, ended 9.1 percent higher at 224.70 on bargain hunting after the stock hit its 52-week low last week on fears of poor sales performance.

State Bank of India, the country's largest commercial bank, rose 3.6 percent to 308.80 on fresh institutional buying on hopes the budget will provide banks with tax breaks on bad loan write-offs.

Shares of banks witnessed large-scale buying on a report that the finance minister would raise the ceiling on foreign fund holdings in government-run banks to 49 percent from 20 percent now.

In the technology sector, HCL Technologies, a New Delhi-based software development and services, ended the week 2.6 higher at 167.90.
Source: IANS
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