Mumbai: India’s benchmark equity index, the S&P BSE Sensex, which has risen nearly 20% so far in 2014 on hopes that the new government will steer the economy back to the growth path, closed lower in roller-coaster trading on the day finance minister Arun Jaitley delivered his first budget.

While some investors cheered the government’s intent to improve its fiscal situation and give a boost to investment and employment, others fretted over the lack of adequate details to back up the intentions while making allowances for the fact that the budget was presented just one-and-a-half months after the Bharatiya Janata Party (BJP)-led government assumed office.

“From a government of all of six weeks, to expect anything else would have been a unfair. I think the real focus should be next year’s budget, which is only eight months away, and by then the government will have a full grip on the economy," said Gautam Trivedi, managing director and head of equities (India) at Religare Capital Markets Ltd.

“Good news is they have focused on fiscal prudence. Also, affordable housing, renewable energy and tourism were a part of BJP’s manifesto, and they have delivered on all three counts at the budget," added Trivedi.

Jaitley stuck to the fiscal deficit target for the year to 31 March set by his predecessor P. Chidambaram in the interim budget at 4.1% of gross domestic product, and promised to lower the shortfall to 3% in two years.

The 30-share Sensex ended down 72.06 points, or 0.28%, to 25,372.75 points after swinging 800 points from its intra-day high to low on Thursday. The National Stock Exchange’s broader 50-share CNX Nifty closed 17.25 points, or 0.23%, lower at 7,567.75 points.

In Thursday’s trading, Hindalco Industries Ltd gained 3.2%—the most among Sensex stocks—while Tata Power Co. Ltd rose 2.7%. Among the losers, Hero MotoCorp Ltd fell 4% and Tata Consultancy Services Ltd lost 2.1%.

The S&P BSE Realty index was the top sectoral gainer, up 5%, as investors cheered measures such as incentives for REITs (real estate investment trusts), and allocations towards affordable housing. Shares of top real estate developer DLF Ltd jumped 9.2% while those of Housing Development and Infrastructure Ltd and Sobha Developers Ltd climbed 5.3% and 2.7%, respectively.

The S&P BSE Power index and S&P BSE Metal index were up 1.1% and 0.9%, respectively. The S&P BSE Consumer Durables index was the top sectoral loser, down 3.1%.

Not everyone was satisfied.

“It is not out of the box, or a big-bang budget as we expected after seeing their election mandate," said market analyst Ambareesh Baliga.

“There is nothing big that we can implement immediately, and can show results right away. He could have diluted the populist scheme, but that didn’t show up at all. Doing so would have given him some relief on expenditure end," added Baliga.

One key positive for the markets could be increased investment by retail investors after the budget left more money in the hands of individuals by increasing tax exemption limits.

Jaitley increased the personal income-tax exemption limit by 50,000 to 2.5 lakh in the case of individual taxpayers, and also raised the investment limit under section 80C of the Income-Tax Act by 50,000 to 1.5 lakh.

“Increase in savings and their productive use leads to higher economic growth. The households are the main contributors to savings," Jaitley said in his budget speech.

In addition, the budget allowed a single KYC (know your customer) and one demat account for all financial sector transactions.

Jaitley also removed ambiguity in taxation for foreign institutional investors (FIIs), and said that if they were based in India, their portfolio income would be classified as capital gains instead of business income. While this may not drive up fund flows immediately, it would provide an incentive for foreign portfolio investors to base themselves out of India.

FIIs, the key drivers of Indian equities, have pumped in $11 billion into the asset class in the year to date.

“One of their concerns is uncertainty in taxation on account of characterization of their income. Moreover, the fund managers of these foreign investors remain outside India under the apprehension that their presence in India may have adverse tax consequences," Jaitley said.

Finance secretary Arvind Mayaram said the move will also encourage FIIs to stay invested for a longer period of time.

“So if FIIs stay invested over a longer period of time, there will be no capital gains tax levied as long term capital gains tax is zero percent. And if they exit within a year, they will have to pay short term capital gains tax," he said.

Remya Nair in New Delhi contributed to this story.

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