Budget has succeeded in keeping market mood positive

The government's commitment to spending on infrastructure, along with provisions for the higher depreciation of capital equipment, should help to speed up a revival of the investment cycle.

Financial institutions and traders have responded to the Union Budget with cautious optimism.

Most investors continue to wax bullish, even though the lack of big bang announcements has led to the moderation of high expectations.

The Nifty and Sensex traded close to their respective all-time highs, while midcap indices hit record levels.

A short-term correction may occur, as some bulls are bound to book profits and disappointed 'hyper-optimists' may curtail exposures; but expectations remain bullish.

Among major foreign institutional investors, Morgan Stanley, Nomura Securities, Citi and Goldman Sachs offered explicit targets for December 2015, with estimates ranged between five and 15 per cent.

Other brokerages and institutions have also offered bullish assessments without necessarily specifying exact targets.

The bulls' hopes are simply enunciated. The economy is pulling out of a trough.

In fact, the new series for gross domestic product, or GDP, suggests that the economy is already growing reasonably fast.

The government's commitment to spending on infrastructure, along with provisions for the higher depreciation of capital equipment, and its ongoing efforts to make clearances and other processes more efficient, should help to speed up a revival of the investment cycle.

The promise that corporation tax rates will be cut over the next few years, albeit with fewer exemptions, has been hailed.

However, this fiscal year, the service tax increase and the surcharge on corporation tax will impact consumption and corporate profitability.

Budget 2015: Complete Coverage

A certain class of investors, with a portfolio of high-dividend yield stocks, will also be unhappy at the increase in dividend distribution tax (payable by companies). There are other reasons for caution.

The deferred fiscal consolidation might be justified on the grounds of pump-priming.

But it also means that India's sovereign ratings will not be upgraded in a hurry.

That, in turn, makes it harder for Indian companies to access cheap funding abroad. It will also somewhat retard inflows.

There are other causes for concern. In 2014-15, tax collection targets were missed by large margins and huge expenditure cuts were necessary. The Budget followed a familiar pattern in this respect.

Comparing Budget estimates with revised estimates, service tax collection will fall short by Rs 47,000 crore (Rs 470 billion), corporation tax by Rs 24,000 crore (Rs 240 billion), and excise and customs by Rs 13,000 crore (Rs 130 billion).

Plan expenditure was slashed by over Rs 1 lakh crore (Rs 1 trillion) to hit the fiscal deficit target of 4.1 per cent of GDP.

The targets for 2015-16 are slightly moderated, but still hopeful, with an assumed rise of 16 per cent in gross tax collections.

What is more, the government has not cut either food or fertiliser subsidies, despite a very sharp fall in fertiliser input costs and lower food prices. This doesn't bode well for its reform credentials.

Market players are also likely to question the estimates on tax collection and attendant enforced expenditure cuts.

Perhaps spectrum auctions and disinvestment will come to the rescue.

Despite these worries, the Budget has succeeded in managing sentiment. If the government can deliver on faster processes overall, and if it can improve the land acquisition situation in particular, the market mood may continue to remain positive.

Budget 2015: Complete Coverage