Budget fails to cheer Indian stock markets, indices fall

The Union Budget 2019-20 failed to cheer the equity markets as the stock indices slumped minutes after Finance Minister Nirmala Sitharaman concluded her speech.

Although the market opened on a positive note, the downtrend began within half an hour of Sitharaman’s speech as she presented her first budget and trade remained largely choppy throughout the two hours 15 minutes speech.

The Sensex closed down 394.67 points to 39,513.39, from the previous close of 39,908.06 points. The Nifty50 on the National Stock Exchange closed at 11,811.15, lower by 135.60 points from the previous close.

In a move to attract more foreign funds into the Indian market, finance minister proposed to allow foreign institutional investors (FIIs) and foreign portfolio investors (FPIs) to invest in debt securities issued by non-banking finance companies (NBFCs).

Proposing a series of reforms of the capital market while presenting her maiden Union Budget, Sitharaman also proposed merging the Non-resident Indian (NRI) portfolio route with the FPI route to increase more NRI fund flows into the country.

The government proposes to allow FII and FPI investment in debt securities issued by NBFCs, she said, adding that it will work with exchanges to allow ‘AA’ rated bonds to be used as collateral.

Allowing FIIs and FPIs to invest in debt securities issued by the NBFCs will permit availability of funds for cash-strapped NBFCs who have been facing a crisis following defaults by IL&FS last year, which made banks wary of lending to these shadow bankers.

The 2019-20 Budget states that the NRI portfolio route will now merged with FPI for se amless investment in stock markets to increase more NRI portfolio flows into India.

Budget also says that the Credit Guarantee Enhancement Corporation will be set up in the current fiscal and action plan will be put in place to deepen markets for long-term bonds with specific focus on infrastructure sector.

Besides, the finance minister said that measures will be taken to make the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi) depositories inter-operable, which is necessary for the seamless transfer of treasury bills.

To attract more funds into the real estate and infrastructure sectors, the Budget proposes to allow FPIs and NRIs to subscribe to listed debt papers of real estate investment trusts (REITs) and infrastructure investment trusts (InvITs)

The minister also said that trading in corporate bonds would be made user-friendly.

The government has asked market regulator Sebi to look at raising the minimum public shareholding level in listed companies to 35 per cent from the current 25 per cent, Nirmala Sitharaman said on Friday.

Presenting the Union Budget 2019-20 in Parliament, Sitharaman said: “We have asked Securities and Exchange Board of India to examinine raising the minimum public shareholding to 35 per cent from the current 25 per cent.”

Once tasked, Sebi will have to give a time frame for this to the companies.

This proposal is aimed at increasing liquidity in the stock markets and reduce share price manipulation. While the Indian market has largely been promoter-driven, a mandatory increase in public shareholding will help deepening of the bourses.

At the same time, such a move will help in tighter corporate governance, which has been slipping as evident from many recent cases. With disclosures being mandatory, such a move will also help protect investors and improve the corporate governance.

Moreover, increase in the minimum public shareholding will bring in more liquidity and close off the avenues for price manipulation.

On the other hand, such a move will affect public sector banks (PSBs) in many of which the government shareholding is even higher than Sebi’s current limit of 75 per cent. Repeated recapitalisation of PSBs in recent times has pushed up the government stake in state-run banks.

The government on Friday hiked its disinvestment target in the current fiscal from Rs90,000 crore to Rs1.05 lakh crore.

Announcing this in her Budget speech, Finance Minister Nirmala Sitharaman said: “We have enhanced the target for disinvestment receipts in FY20 to Rs 1.05 lakh crore. The current target is Rs90,000 crore.”

The hike in the sell-off target comes amid the slow growth in tax proceeds, forcing the government raise revenue from non-tax revenue sources.

The 2017-18 disinvestment proceeds were above Rs 1 lakh crore. In 2018-19, the sell-off mop up fell to Rs 85,000 crore.

Sitharaman said the government will continue with strategic divestment of select Central Public Sector Enterprises (CPSEs) and will modify the present policy of retaining 51 per cent stake in PSUs.

Indo-Asian News Service