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Indian Shares Erase Gains After Union Budget

Indian shares fell sharply on Friday, erasing early gains, after finance minister Pranab Mukherjee unveiled a populist budget for fiscal year 2012-13, with no concrete reform measures announced on issues such as fuel and fertilizer subsidy, FDI in aviation and retail, DTC and GST.

The fiscal deficit target has been pegged at 5.1 percent of the gross domestic product (GDP) for the fiscal year 2013, while GDP growth is estimated at 7.6 percent against 6.9 percent for 2011-12. With the easing of inflationary pressure in the months ahead, the government said it expects growth to accelerate further to 8.6 percent in 2013-14.

Tax slabs have been re-jigged and the basic exemption limit is raised to Rs 2 lakh from the current Rs 1.8 lakh. Mukherjee lowered the Securities Transaction Tax on cash delivery by 25 percent to 0.1 percent, but hiked excise and service taxes on various goods by 2 percent.

The finance minister proposed to launch a new scheme named Rajiv Gandhi Equity Savings to allow for income tax deduction of 50 percent to new retail investors. Henceforth, qualified foreign investors will get access to corporate bond market. The government didn't give any time-frame for the implementation of the Direct Tax Code, the proposed reforms in the direct tax system.

The benchmark 30-share Sensex ended the day down 210 points or 1.19 percent at 17,466, with 21 of its component retreating. Sun Pharma led the declines with a 7 percent loss.

Shares of oil exploring companies such as Reliance Industries, Oil India, ONGC and Cairn fell 3-6 percent after the finance minister hiked the cess on domestic crude to Rs 4,500 per ton from Rs2,500 per ton.

Metal stocks such as Tata Steel, Sterlite and Jindal Steel lost 2-4 percent, power producers like NTPC and Tata Power fell around 4 percent each, telecom giant Bharti Airtel shed 1.5 percent, private sector lender ICICI Bank declined 1.4 percent and Tata Motors, India's largest automaker, ended 0.9 percent lower.

The broader Nifty index fell by 63 points or 1.16 percent to 5,318, while the BSE mid-cap and small-cap indexes ended down 0.7 percent and 1.1 percent, respectively.

State-run banks reversed early gains to end mostly lower after the finance minister set aside Rs 15,890 crore for recapitalizing public sector banks. Small-car maker Maruti Suzuki gained half a percent in the wake of tax hike on big cars.

Indian Depository Receipts of Standard Chartered Plc hit the 20 percent upper circuit limit as the government permitted two-way fungibility of the IDRs, a move that facilitates the convertibility of IDRs into home-market shares and vice versa.

Golden Tobacco, Godfrey Phillips India and ITC climbed 3-4 percent after the Union Budget 2012-13 reduced basic customs duty on cigarettes. SKS Microfinance rose 1.3 percent after the government said it would introduce new laws for micro finance companies. Oil retailers HPCL and IOC ended firm and BPCL closed little changed as the budget proposed direct cash transfer of subsidy for LPG and kerosene.

On the global front, most Asian stocks fell on Friday and European shares swung between gains and losses in early trading, as investors cashed in on recent sharp gains, awaiting further directional cues. Renewed concerns about Chinese growth also overshadowed further signs of strength in the U.S. economy. Copper and crude futures were modestly higher as the dollar took a breather following a broad rally.

by RTT Staff Writer

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