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Monday, February 26, 2007

All eyes on Railway Budget


Sensex lost 723 points last week as a major correction gripped bourses due to caution ahead of the announcement of the Railway Budget and Union Budget 2007-08. Data showing heavy FII sales in derivatives and their outflow in the spot market for the second day in a row on Thursday 22 February may weigh on the bourses today.

Railway Minister Lalu Prasad Yadav today unveils the Railway Budget. Market talks are that the government may cut some passenger and freight fares in a bid to combat inflation. Last year passenger and freight rates were left broadly unchanged.

Union Budget 2007-08 to be presented on Wednesday 28 February remains a key near term trigger for the market. Concerns that the government may raise short-term capital gains tax on sale of shares from the current 10% have gained currency. The securities transaction tax (STT) may also go up further. The STT was raised in the previous budget. The removal of 10% corporate surcharge may be offset by removal of certain open-ended exemptions. Market men also expect the finance ministry to give a big impetus to agriculture and infrastructure in the budget.

FIIs were net sellers for the second day in a row on Thursday. They were net sellers to the tune of Rs 225.20 crore on Thursday compared to their outflow of Rs 40.20 crore on Wednesday 21 February. But as per provisional data, FIIs were net buyers to the tune of Rs 334 crore on Friday 23 February, the day when Sensex had lost 389 points.

While FIIs were net buyers in the spot market, they pressed heavy sales in index-based futures on Friday. They were net sellers to the tune of Rs 1547 crore in index-based futures on Friday. They were net buyers to the tune of Rs 18 crore in individual stock futures on that day. Nifty March futures settled at 3933.75 on Friday, a discount of 5.20 points compared to spot Nifty closing of 3938.95.

Asian markets were mixed on Monday (26 February). The key benchmark indices in Japan and Taiwan were up by between 0.4% to 1.5%. The key benchmark indices in Hong Kong and Singapore were down by between 0.2% to 0.7%.

US stocks fell for a third straight session on Friday as concern over rising defaults in the subprime mortgage industry drove down financial services shares and the price of oil hit a 2007 high. The Dow Jones industrial average fell 38.54 points, or 0.30 percent, to end at 12,647.48. The Standard & Poor's 500 Index dropped 5.19 points, or 0.36 percent, to finish at 1,451.19. The Nasdaq Composite Index lost 9.84 points, or 0.39 percent, to close at 2,515.10.

US crude rose for a fourth day, up 31 cents to $61.45 a barrel on Monday and nearing a fresh 2007 high, as rising tensions over Iran's nuclear programme added to concerns over on an unexpectedly deep drop in US fuel stocks and supply disruptions. Western powers prepare to meet in London on Monday to discuss tightening sanctions on Iran over its nuclear plans amid tough talk between Washington and Tehran. Iran insists it is entitled to nuclear power to generate electricity but many in the West suspect it is trying to build an atomic arsenal.