The markets may still be up when you read this, but eventually...

By Roshni Jayakar

For Finance Minister Yashwant Sinha it was 110-odd minutes of work. For the Bombay Stock Exchange the value of this time-period was exactly Rs 25,957 crore; that's the increase in the market capitalisation of BSE-stocks at the end of the trading day.

The bulls were riding high, and they had reason to: a 10 per cent fall in the dividend tax rate (now down to 10 per cent); an increase in the limit of FII portfolio investment to 49 per cent from the existing 40 per cent; and exemption of long-term capital market gains by ploughing back into primary issues. Now, add to that the proposed two-way fungibility of ADRs and GDRs and the provision allowing Indian companies that have made ADR and GDR issues to acquire shares of foreign companies up to a ceiling of $100 million, or 10 times their exports, and the result is a boost to sentiment.

Feeling Alright

Predictably, fund managers and brokers are suggesting that the time is ripe to invest in stocks. Avers P.S. Subramanyam, Chairman, UTI: ''This is not just euphoria. I see a sustained bull run ahead.'' Seconds R. Ravimohan, CEO, Crisil: ''Market sentiment is buoyant post-budget.'' And just in case you are one of those sceptics who needs a third opinion, listen to what Shailendra Bhandari, the Managing Director of Prudential-ICICI Asset Management Company, has to say: ''There are lots of factors in the budget that could give a positive boost to the market.''

That makes sense: companies will save on tax, which will, in turn, result in an increase in their profitability. But can we be sure that the bull run will continue. Not quite. Cautions U.R. Bhat, CIO, Jardine Fleming India Asset Management Company: ''What we are seeing is more of a relief rally and there could be (other) reactions later.'' Adds Devina Mehra, Director, First Global: ''The Sensex has not yet bottomed out. I don't see a secular uptrend.'' History suggests that there may be something in what the Cassandras have to say. Over the last five years, and over the last five budgets, indices may have zoomed up riding on post-budget highs, but eventually, the markets have set their own direction. Most market movers have picked their strategies.

Foreign Institutional Investors: In the first two months of 2001, FIIs have invested Rs 5,531 crore in the market. The 49 per cent amendment makes a difference, but not much: there are 13 companies in which FII investment has touched 40 per cent and even if the FIIs wish to up stakes in all of them the incremental inflow would be just under Rs 1,800 crore. Says Brian Brown, CEO, Salomon Smith Barney: ''While the impact of this move is at best marginal, since there is not a long list of companies that have hit the 40 per cent FII cap, psychologically it's a big positive.'' Indeed, weightages in the Morgan Stanley Capital Index (MSCI) are now built around the free float or market capital available to FIIs, not market capitalisation. The hike in FII-ceiling from 40 per cent to 49 per cent will increase market capital available to FIIs. That should up funds inflow. Interestingly, on the budget day, FIIs were net sellers to the extent of Rs 127 crore ($27.4 million)

Mutual Fund Managers: Fund managers are ecstatic. The reduction in administered interest rates, they believe, will make mutual funds more attractive in the eyes of investors. With the Reserve Bank of India following up Sinha by reducing the interest rate by 50 basis points, more money could flow into the equity market.

The Happening Sectors

Where's the money headed? ''It would be a mixed bag of sectors that have benefited from the budget,'' says investment advisor Deepak Mohoni. Tech companies could also benefit from the two-way fungibility of ADRs and GDRs. But other sectors will benefit too: in the short run banks holding long-dated government securities would gain with interest rates cut, and changes in direct and indirect taxes would help automobile, FMCG, and the pharma sectors.

The primary market will benefit from the move allowing an exemption of capital gains when these are invested in IPOs (this isn't as new as it looks and was tried, and soon withdrawn, by the then Finance Minister H.M. Patel in 1977). This could help increase investor activity in the primary market, but it comes with a caveat. Warns Prithvi Haldea, CEO, Prime Database: ''Fiscal measures should not be used to lure money into the capital market. If investors put money into the equity market without evaluating the risks, it could be damaging to the long-term interest of the markets.''

Our take: The first few weeks post-budget will probably be bullish, but things could go bad if the NASDAQ composite index falls below 2,000 (which it will if things go bad in the US economy). Devina Mehra forecasts a trading market with the Sensex hovering between 3,500 and 4,800, but you can never tell.

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