The stock markets received a wholesome backing from Finance Minister P Chidambaram with the Union Budget proposing steps aimed at beefing up the stock market infrastructure including the introduction of short selling in capital markets by institutions. He also proposed the setting up of a stock lending and borrowing programme.

The decision of the International Organisation of Securities Commissions (IOSCO), the umbrella body comprising all major capital market regulators, to hold its annual conference in Mumbai - the first time in India - in April 2007, showed the international recognition of the strength of the Indian stock markets, Chidambaram said.

M Damodaran, chairman of the Securities and Exchange Board of India (Sebi), was elected chairman of the Emerging Markets Committee of the IOSCO at its last annual conference in Hong Kong.

"Overall, the Budget is positive for the capital markets. The measures announced in the Budget are clearly aimed at strengthening the market infrastructure," said S Ramesh, chief operating officer of Kotak Mahindra Capital.

It was felt that the government should tax only those companies that have grown big enough while the tax sops should be continued on new companies.

Further, the fact that the Finance Minister did not tinker with the capital gains tax structure is also a big positive for the markets.

"I think IT companies have matured enough to pay the Minimum Alternative Tax (MAT). The move to tax cement companies which sell a bag of cement (50 kg) at over Rs 190 is clearly intended to curb the rising inflation," said Sanjay Sachdev, country manager-India of Shinsei Bank Group. Cement and IT stocks tumbled in the wake of the announcement.

C J George, managing director of Geojit Financial Services welcomed the move to allow short selling (selling of shares without actually having the physical shares) would act as a tool in the hands of institutions to calm an "overheated market".

The proposal to put in place a lending and borrowing programme along with short selling would mean all short selling would result in delivery of the shares.

George said this facility of lending of shares should also be extended to individual retail investors.