Indian shares ended slightly lower on Thursday after the government ended a tax break on certain equity investments, but proposed a slew of structural reforms ahead of the national poll early in 2019.
Finance Minister Arun Jaitley in his budget speech announced that the profits exceeding Rs 100,000 from shares held for more than a year will be taxed at 10 percent.
The benchmark S&P BSE Sensex fell as much as 1.3 percent following the tax announcement but recovered later as investors deemed the rate to be modest.
Bonds and the rupee fell after the budget revealed a fiscal deficit of 3.5 percent in the year ending March 31, wider than the previous 3.2 percent target.
The rupee weakened to 63.78 per dollar from around 63.5950 before Jaitley's speech. It had closed at 63.58 on Wednesday.
Despite some initial concerns, the fiscal deficit target was not as wide as some investors had initially feared, while incentives for key areas of the economy such as agriculture helped markets erase most of its losses.
The S&P BSE Sensex declined 0.16 percent at end at 35,906 while the broader NSE Nifty dropped 0.10 percent to 11,016.
Among the top Sensex laggards, Sun Pharma fell 4 percent, ONGC declined 3.9 percent, ICICI Bank dropped 2 percent while Dr. Reddy's was down 2.8 percent.
Bharat Electronics plunged 4.4 percent after its board approved Rs372 crore share repurchase plan.
But Eicher Motors shares rose 3.9 percent after the company said its January total motorcycle sales rose 31 percent to 77,878 units.
Cigarette stocks ended higher after no major announcement of excise duty hike on cigarettes in the budgetr. ITC rose 1.5 percent, Godfrey Phillips India was up 0.6 percent.
Market breadth was in the favour of gainers, with about 2 stocks advancing to every 1 stock that declined.
In Asia, shares edged higher after last week's sharp losses, despite a flat session on the Wall Street overnight, underpinned by economic growth recovery.
The U.S. Federal Reserve flagged interest policy tightening later this year and upgraded inflation outlook, at its policy meeting on Wednesday, Reuters reported. It kept interest rates on hold as expected.