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India's stock markets to remain subdued ahead of budget

BOMBAY: India's stock markets will remain subdued ahead of the federal budget presentation on February 29 and could rally later in the week if the announcements contain any of the expected pro-reform measures, analysts said.

But most investors do not expect any major steps to boost capital markets; and they are cautious of the government's zeal over reforms, which many fear, could lead to some harsh economic measures.

One such fear in the stock markets is a possible tax on the booming information technology sector.

"The market is eyeing two things; pro-reform measures and whether the finance minister imposes a tax on the software sector," Aditya Srinath, strategist at SSKI Securities said.

Uncertain about actual measures in the budget, speculators and retail investors preferred to cut their exposures last week.

Unwinding of outstanding positions shaved seven percent off the key Bombay index last week from a high of 6,033.98 points.

The benchmark Bombay Stock Exchange index ended the week 1.7 percent or 98.57 points lower at 5,623.08.

Latest data from the Securities and Exchange Board of India (SEBI) showed foreign funds were net buyers of $562.5 million in February so far. They invested over $1.5 billion in 1999.

"Besides the budget, the market will track foreign funds' figures next week, especially after the budget, to get a short term support," an analyst with a foreign brokerage said.

Analysts said if foreign funds suddenly decide to reverse buying and start booking profits, it could trigger a big correction in the market.

But, the Bombay index will find support at 5,515 points on the lower end, Jignesh Shah, technical analyst at Triumph Securities said. The 30-share index continues to face strong resistance on the upper side at 5,900, he said.

Traders will get news early this week when Indian Finance Minister Yashwant Sinha presents the country's economic report card on Monday.

The annual report titled Economic Survey will reveal government's estimates of GDP growth, industrial production, and public finance for the fiscal year 1999/2000 (April-March).

The survey will also give estimates for India's foreign trade, current account balance and infrastructure investments.

On Tuesday, the Finance Minister presents the 2000/01 (April-March) federal budget in the lower house of Indian parliament.

Sinha is expected to cut subsidies, withdraw tax exemptions and increase taxes. But the market endorses his view that fiscal stringency is needed.

Analysts said worries over a tax on the infotech sector could be outweighed by a number of sops such as a hike in investment limit on Indian infotech firms investing abroad, tax incentives to internet service providers (ISPs) and lowering of duties on equipment imported by ISPs.

"Software and telecom sector are likely to be the biggest beneficiaries in this budget, and that should propel these stocks after the budget," an institutional dealer with a domestic brokerage said.

Indian media and entertainment firm Zee Telefilms after the company's board approved a proposal on February 25 to raise $1.5 billion through the issue of American Depositary Receipts.

Confectionery maker Cadbury India as its board meets on Friday to consider the issue of bonus shares in the ratio of one share for every two held.-Reuters