We are seeing the much required 'de-glamorisation' of the annual budget, which would bring in more stability on fiscal policies and allow the government to address policy issues outside the budgetary process in a more comprehensive manner. To put it in one phrase, this one is not for thrills. From an equity market perspective, this takes out much of the politics and the uncertainties associated with it, out of the budget.

The budget speech was, however, loaded with indications on what to expect in future. References to the Chinese model on FDI, better performance of sectors in which FDI was allowed in the past, request to fellow members to be pragmatic on FDI, references to the miniscule size of Indian banks and the need for consolidation and competition in the banking sector, more commitment on infrastructure especially rural infrastructure under the Bharat Nirman program, launch of NHDP-3 for busy highways which were not covered under the earlier stages, improved performance of the insurance sector after opening up and the need for further competition, more independence and flexibility to RBI etc are indicators to policy announcements in the immediate future.

On the tax front, the confirmation on VAT roll out from 1 April and a gradual shift to a central VAT and later on to a comprehensive national goods and services tax could change the economic future of this country, if implemented effectively. The promised amended Income Tax Act in the budget session itself should see simplification of tax structure and elimination of a plethora of exemptions and deductions under the current structure. So, even when the finance minister has avoided any major announcements, he does not leave anyone in doubt as to the direction and pace of the reform process. This should comfort many investors who had doubts about the ability of this government to deliver on the face of opposition from its own allies.

However, the government is taking considerable risks on fiscal health. The incremental revenue generation from customs duty would remain low in the near term with rates coming down. Introduction of VAT should see some disruptions with some states not completely on board. The government seems to be betting on a higher nominal growth rate of 12 per cent to bridge the revenue shortfall. This may or may not happen and much would depend on the monsoon this year. The focus should naturally be on expenditure management and the lack of any announcements on that front, hopefully, is for political reasons. Hopefully, the government will 'walk the talk' on the frequent statements on improving delivery. Keep a close watch on government finances.

Markets are happy. Why shouldn't they? Corporate taxes are down, individual income tax rates are also down, which should bring in more money into the markets and, more importantly, there are no negative proposals for the corporate sector. The increase in securities transaction tax was expected and won't hurt much. Everybody is sitting on profits and this tax is more like a withholding tax, so why should anyone complain? Trading in futures and options are no longer speculative business under income tax rules. Markets closed very strongly with a gain of 144 points on the Sensex and 42 points on the Nifty. Nifty futures ended higher by 57 at 2114 points and Sensex futures are up 179 points at 6730.

Mutual fund managers should be a happy lot, despite the increase in securities transaction tax on mutual fund transactions. The reduced income tax rates would mean more funds in the hands of the investor and should see increased inflows into mutual funds. More importantly, the income tax deduction limit of Rs.1 lakh on savings without any sub limits would see more investments in high return instruments like mutual funds as compared to debt and insurance products.

Specific budget proposals and their impact on individual stocks:

• Reduction in customs duty on crude to 5 per cent: All oil marketing companies, IOC HPCL and BPCL should benefit. Negative for ONGC.
  
• Increased flexibility to RBI on SLR and CRR rates: Positive for the banking sector in general, but would depend on implementation.
  
• Allowing banks to raise preference capital: Positive for all banks as this would help them meet Basel norms.
  
• Package for the sugar industry: Though sugar stocks were on fire, this package would benefit the cooperative mills more than the listed companies. Sugar companies would benefit more from a gradual decontrol, if and when it is carried out.
  
• Reduction in income tax rates: This would put more money in the hands of the consumers and should be positive for all FMCG companies, especially HLL, P&G, Dabur, ITC and Marico, and to a lesser extent on organised retail players, Pantaloon and Trent.
  
• Focus on infrastructure: Moves on building rural and urban infrastructure, SPV for infrastructure funding and NHDP-3 are positive for all construction companies like L&T, Gammon India, IVRCL, Alstom etc. Positive for power equipment and transmission companies like BHEL, Siemens, ABB and KEC. Also positive for cement and steel companies. Power equipment stocks should benefit from the cut in duty on copper and aluminium as well.
  
• The 10 per cent capital investment subsidy, textile upgradation fund, reduction in customs duty on textile machinery to 10 per cent and de-reservation of some textile goods should help the textile sector.
  
• Focus on micro-irrigation should be a major boost to companies like Jain Irrigation, Finolex Industries and Sintex.
  
• Tea sector productivity improvement programmes is positive for plantation stocks like Tata Tea, Jayshree Tea, Harrisons Malayalam etc. Tea marketing companies should benefit from the abolition of surcharge.
  
• 10 per cent surcharge on tobacco products is negative for ITC and GTC in the short term purely on sentiments. However, this will not affect the businesses of these companies in a big way.
  
• Duty cut on coated paper is negative for Ballarpur Industries in the short term.
  
• Excise duty cut on tyres is positive for MRF, Apollo and JK.
  
• Excise duty cut on PFY is positive for Reliance and Indo-Rama. However, the cut in import duties on petrochemicals would adversely affect them.
  
• Excise duty cut on air-conditioners should benefit Blue Star, Voltas, Videocon and Onida.
  
• Excise duty cut on refined edible oil and vanaspati would benefit ITC, Marico and HLL.
  
• Service tax on transmission pipelines is negative for companies like GAIL. However, the focus on natural gas as feedstock for the fertilizer sector should see this sector gain.
  
• Reduction in import duty on coking coal should benefit steel manufacturers like Tata Steel, Sail, Jisco and Ispat. Negative for coking coal manufacturers like Gujarat NRE Coke.
  
• Reduction in peak customs duty is negative for the industrial chemical companies like Tata Chemicals, Hindustan Organic etc.
  
• Reduction in import duty on lead would benefit battery manufacturers like Exide and Amararaja.
  
• Lower duty on electronic components would benefit consumer electronic manufacturers like Videocon and Onida.

To sum up, banks and oil marketing companies are the clear winners from the budget, with no clear losers. The reduction in peak customs duties would see increased competition and also an increase in competitiveness. The reduction in corporate tax is a big positive and should induce a pickup in investments. More importantly the reduction in personal income tax and the efforts to raise rural incomes should become strong drivers for demand growth.

This would also see improved liquidity flows into the markets. FII's are positive about the budget and reforms like VAT and overseas inflows should be healthy. So, if you are an investor, stay invested and keep an eye on economy growth rates and government finances. Any negative news on these fronts would dry up the inflows, especially overseas inflows, into the market and the market may head south.