Indian shares fall as populist budget fails to cheer investors

Mumbai: Indian shares fell 1.4 per cent yesterday to their lowest close last week, after the national budget failed to cheer investors already shaken by turbulent global markets.

The government promised higher spending for ailing farms and pledged funds for rural revival in the 2008-09 budget, but a $15 billion scheme to waive loans and plans to raise the tax on short-term capital gains weighed on the markets.

The benchmark 30-share BSE index ended down 1.38 per cent, or 245.76 points, at 17,578.72 in choppy trade after falling as much as 3.2 per cent at one stage. Twenty-one components closed in the red.

"The budget lacks teeth because there are no major reform initiatives on the plate, which were put up in the earlier years," said Jigar Shah, head of research at KIM ENG Securities' Indian unit.

The budget raised short-term capital gains tax, when an investment is sold for profit before one year, to 15 per cent from 10 per cent. The move could affect day traders, or people who look for quick gains.

However, duty cuts on automobiles could help some sectors to recover, analysts said.

"I feel the markets are headed up," said R. Raja-gopal, chief investment officer at DBS Cholamandalam Asset Management. "It will be a function of money flow and when the valuations are quite attractive."

For the week, the index was up 1.3 per cent. But it slipped 0.4 per cent in Feb-ruary, extending losses to 13.4 per cent this year and is 17 per cent below a record high of 21,206.77 hit on January 10.

Reliance Industries, India's most-valuable company and top petrochemicals maker, fell 3.1 per cent to Rs2,458.25, after the government imposed a five per cent import duty on naphtha, used to make polymers.

Larsen &Toubro, India's top engineering company, fell 3.2 per cent to Rs3,523.05, as the government did not announce any "big bang" infrastructure project, a trader said.

Infosys Technologies fell 3.3 per cent to Rs1,546.85 after it said its taxes would go up to 22 per cent in 2009-10 from about 15 per cent as a 10-year tax holiday is expected to end in March 2009.

These three stocks together account for more than 28 per cent of the main index.

Banks shares initially fell sharply after the finance minister proposed to waive $15 billion of loans to farmers, but then pared losses when it became evident the government would pick up most of the bill.

ICICI Bank closed 1.1 per cent lower at Rs1,090.95, recovering from a low of Rs1,050, while the BSE bank index ended 0.4 per cent up, reversing a loss of 3.8 per cent.

The 50-share NSE index fell 1.17 per cent to 5,223.50.

IFCI rose 6.9 per cent to Rs66.90 after the budget allocated Rs4.33 billion to restructure the state-run lender its liabilities.

Consumer goods makers rose on proposals to do away with excise duty on packaged foods such as tea and coffee, from 16 per cent now.

Hindustan Unilever rose 3.3 per cent to Rs227.35, also helped by a proposal to halve the tax on water purification systems to eight per cent.