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MUMBAI: Indian equity markets on Wednesday erased all gains made earlier in the day and traded nearly 0.5% lower amid selling pressure in blue chips.

At 1.15pm, the benchmark Sensex was down 0.5% at 51990 points while the Nifty fell 0.4% to 15652 points. In early deals, the benchmarks had risen 0.4% each. Bluechips like Reliance Industries, Bajaj Finance, ICICI Bank, Bharti Airtel lost 1-1.5%.

Investors were worried that the government's free vaccine policy and free food grains for poor will likely increase fiscal deficit.

A Bloomberg report cited officials saying that these two changes will cost the exchequer an additional Rs800 billion, about 0.4% of GDP - Rs700 billion for food grains and Rs100 billion for vaccines. Given that vaccine supply will be a mixed basket – domestic production and costlier imported varieties – the actual spend may be higher than the indicative Rs450 billion, comprising te=he budgeted Rs350 billion and the additional Rs100 billion.

"The FY22 expenditure faces an upside risk of ~0.4-0.5% of GDP, posing risks to the budgeted deficit of -6.8% of GDP. However, the final math might find some wiggle room from nominal GDP buoyancy (higher deflators) and a likely reprioritization in existing spending heads to minimize the risk of a deficit slippage beyond targets," said Radhika Rao, economist at DBS Bank.

Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services, said after the recent run-up, the Nifty now trades at rich valuations. Thus, any negative surprise or misses in the June quarter earnings could act as a dampener.

"However, the overall structure of the market remains positive as the second COVID wave has now started to recede, with the number of active COVID cases down >50% since its peak in early May to sub-18 lakhs now," Khemka added.

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