Mumbai: Indian shares climbed 1.1% on Friday to their highest close in more than two weeks, after the national budget raised tax exemption limit for individuals and boosted consumption power.
Financials led the gainers as the 2010/11 budget proposed a recapitalisation plan for state-run banks and infrastructure spending that would help increase demand for loans.
The 30-share BSE index closed up 1.08%, or 175.35 points, at 16,429.55, helping the benchmark to notch a 0.4% gain in February after falling 6.3% in January.
In his budget, finance minister Pranab Mukherjee raised the tax-exemption slab for personal incomes, enabling higher consumer spending.
“It’s very positive because it is putting more money in the hands of consumers, which will have a multiplier effect,” said Sanjay Sinha, chief executive of L&T Mutual Fund.
Mukherjee also withdrew some incentives to help tide the economy through the worst of the downturn, but analysts said this would not stop the economic recovery.
“The market’s rally post the budget reflects a realistic and progressive F2011 budget,” Morgan Stanley said in a note. “The government is achieving fiscal consolidation program which is positive for earnings growth and market performance.”
The BSE index rose as much as 2.6% after the budget before paring gains. Twenty-five of its components advanced. The 50-share NSE index closed 1.3% higher at 4,922.30.
Mukherjee said the 2010/11 fiscal deficit will decline to 5.5% of GDP in the new year from 6.9% this year, slightly lower than a Reuters poll forecast of 5.6%.
Expectations for robust economic growth in the new fiscal year will help India reach its deficit target without making tough decisions to cut spending, analysts said.
“Lack of negative surprises really helped the market. It was more of a relief, with the event risk being taken off,” said Nitin Rakesh, CEO of Motilal Oswal’s asset management business.
Top lender State Bank of India climbed 3.2% while rivals ICICI Bank and HDFC Bank rose 2.4% and 1% respectively.
Auto makers were boosted by the prospect of greater consumer spending, and analysts said a rise in excise duty on large cars and vehicles was in line with expectations.
Leading vehicle maker Tata Motors was also helped by a rise in sales and margins at its Jaguar Land Rover unit as luxury buyers returned after the global crisis. The stock rose 6.3%.
Top car maker Maruti Suzuki India and utility vehicle maker Mahindra and Mahindra gained 4.5% and 5.1% respectively.
Cigarette-to-hotel group ITC fell 6.2% to Rs232.05, after the budget increased excise duty on cigarettes and tobacco products.
Bharti Airtel, which is in the process of buying most of the African assets of Kuwaiti telecoms Zain for $9 billion, joined the broad market rally and gained 1.1% to Rs279.25.
“While we believe that the premium paid by Bharti to acquire Zain is largely factored in to Bharti’s stock price, we see more near-term risks than upside catalysts to re-rate the stock,” Goldman Sachs said, cutting the stock to neutral from buy.
In the broader market, gainers were nearly twice the number of losers on volume of 363 million shares, higher than last week’s daily average of 331 million shares.
Indian markets are closed on Monday for a public holiday.