Indian stocks fall as budget sparks share glut worries; bonds, rupee firm

Indian shares fell on Friday after Finance Minister Nirmala Sitharaman proposed increasing the minimum public shareholding in listed companies to 35% from 25%, threatening a wave of new issuance.

Sitharaman unveiled the proposal while presenting the budget for the fiscal year ending March 31, 2020 to parliament. She said the government has asked the Securities and Exchange Board of India to consider the proposal, but did not give many other details.

Indian bonds and the rupee firmed. In the budget the government unexpectedly trimmed its fiscal deficit target to 3.3% from 3.4% for this year and said some of its borrowing would be made offshore.

Corporate taxes were cut to 25% for some firms, but the government also raised import tariffs on items such as gold and imposed an additional duty on petrol and diesel, stoking fears of inflation. (For budget highlights, see

The broader NSE index closed down 1.14% at 11,811.15 points, while the BSE index settled 0.99% lower at 39,513.39.

Eight of the 11 sector indexes compiled by the NSE closed in the red, while 16 of the 19 sector indexes compiled by BSE ended lower.

Shares of Tata Consultancy Services Ltd was the biggest drag on the index, tumbled 3.6%. The country's IT index was down 2.5%.

"For a company like Tata Consultancy Services, if they are to raise the public holding to 35%, they will have to sell stocks for billions of dollars. This will have a lot of practical difficulty - it was not well thought out," said VK Vijayakumar chief investment strategist at Geojit Financial Services.

Rajiv Singh, CEO of stock broking at Karvy Broking, said many companies would need to increase their public shareholding, mostly by selling of promoters' stakes or additional equity issuance.

"The detail to watch out for is the time allowed to meet this new rule," Singh added.

The government also said that it would inject an additional $10.2 billion of capital into state-owned banks laden with bad debts. The Nifty PSU index, which tracks India's state-owned lenders, climbed as much as 1.6% to an over 5-week high.

BONDS

The 10-year benchmark government bond yield fell to 6.68%, from 6.75% before the budget.

The rupee strengthened to 68.53 from 68.70.

"Some small amount of slippage (in the deficit target) could have been pardoned by the markets. The fact that gross government borrowing remains unchanged is extremely positive," said Lakshmi Iyer, head of fixed income at Kotak Mutual Fund.

"The (central bank) has already moved into accommodative policy on the rates front and with the government not breaching the line on fiscal discipline, it spells good news for bond markets. We expect further easing in bond yields in the coming months."

Sitharaman also said the government planned structural reforms to kickstart foreign and domestic investment and boost flagging economic growth, which fell to a five-year low in the Jan-March quarter.

But investors were largely unimpressed.

Sithraman said India would become a $3 trillion economy in the current fiscal year, and a $5 trillion economy in the next few years, though some analysts said the latter target will be a tall order.

Yes Bank and NTPC Ltd were the top percetage losers on the NSE index, closing 8.6% and 4.7% lower, respectively.