The BSE Sensex and Nifty are likely to hit record highs on Monday as Finance Minister Arun Jaitley's Union Budget seems to have won the approval of Dalal Street. As of 08.40 a.m., Nifty futures on Singapore Exchange traded 1.2 per cent higher at 9,002.
On Saturday, Mr Jaitley announced Rs 70,000 crore more to increase spending on the country's infrastructure, a step likely to kick start the investment cycle and put the economy back on track.
He also promised lower-than-expected market borrowing despite raising the fiscal deficit target. The finance minister proposed a cut in corporate tax to 25 per cent from 30 per cent over four years; he said GST implementation from April 1, 2015 remained on track.
Relief to foreign investors:
Mr Jaitley also announced several measures to woo foreign investors, who have been the backbone of the current rally that has seen Indian stocks outperform most emerging markets.
He deferred the dreaded General Anti Avoidance Rule (GAAR) by two years. GAAR, supposed to kick in from April 1, 2015, aimed to deny tax benefit to any arrangement that is entered into primarily to avoid tax. The rule would have taxed foreign investors that route portfolio investments through tax havens such as Mauritius.
The Budget also proposed to extend a concessionary rate of 5 per cent for so-called withholding taxes on debt investments by foreign investors by two years, until July 1, 2017. The government had cut the tax on income from debt investments to 5 per cent from 20 per cent in 2013.
"The measures announced for offshore investors will help in improving capital inflows as the overall fundamentals of the economy improve," said Ashish Parthasarathy, treasurer at HDFC Bank.
India has received a net $51.6 billion in investments into shares and debt since the start of 2014, on the back of easing inflation and bets on an improving economy.
Indian markets were extremely choppy, but closed higher on Saturday; it was the first positive close on a Budget day in four years. The Sensex had closed 141 points higher at 29,361, while the Nifty ended at 8,902, rising 57 points.
(With inputs from Reuters)