Home > Business & Investment > Markets Could Be In For A Major Up Move

Markets Could Be In For A Major Up Move

Monday, March 04, 2013

Clifton Desilva is an investment expert and a Director at Altina Securities.

The Union Budget for 2013-14 presented by the Finance Minister P. C. Chidambaram has been hailed as a growth oriented budget in the light of the challenging economic backdrop. The Indian economy has been in the slowdown mode and what the budget aims at is reversing this trend.

The budget reflects a realistic perception of the current macroeconomic conditions and it addresses important areas of concern. The finance minister has commendably managed to ease concerns of an unrestrained fiscal deficit. Bringing down the fiscal deficit from 5.7% in 2011-12 to 5.2% in 2012-13 despite the economic slowdown clearly indicates that discipline has been maintained.

The provisions for overall subsidies are 10% lower than the revised estimates for the current fiscal, which will lead to a creation of an environment for moderation in interest rates as well as create space to focus on revival of growth in the economy which in turn would lead to boosting of confidence and thus encourage foreign investment and support the balance of payments and currency.

A series of measures have been announced in the budget for the infrastructure and manufacturing sectors that are positives. There is an incentive through a 15% deduction as investment allowance for investments above Rs. 100 crore which will spur investment.

The emphasis is on growth. The Indian economy is in a slow down mode and the figures released for the third quarter of fiscal 2013 reveals that the economy has grown a mere 4.5% against estimates of 5%. The manufacturing, mining and agriculture sectors have disappointed. However, the finance minister appears hopeful of ending the fiscal 2013 with a GDP growth of around 5.5%, and has targeted a GDP growth of 6.1-6.7% for 2013-14
The finance Minister also appears keen to address the issues of the Direct Tax Code (DTC) and Goods and Services Tax (GST). In regard to GST the finance minister has made his commitment clear by making a provision of Rs. 9000 crore toward GST and is hopeful that most of the states would fall in line. As and when implemented this measure will add to growth and income.

Also to promote inclusive growth the finance minister has initiated several schemes towards rural spend and mass housing.

The budget has also initiated some market friendly measures like extending the Rajiv Gandhi Equity savings Scheme (RGESS) for a period of three years on a cumulative basis. Further, the eligibility income criterion has been liberalized to Rs. 12 lakhs from the present Rs. 10 lakhs

Further, the Securities Transaction Tax (STT) has been reduced from 0.17% to 0.01%.

Through the disinvestment programme, the budget seeks to garner an amount of Rs. 40,000 crore and an additional amount of Rs. 14,000 crores through SUTI and residual stakes in non government companies like BALCO and Hindustan Zinc.

In a nutshell the budget contains several measures which over the longer run could lead to the revival of the economy.

However, despite the positive features of the budget, the stock market reacted negatively with the Indices falling over 1.5%. The Sensex tanked 291 points while the Nifty shed 103 points.

A proposal in the Union budget that could result in inflows through the Mauritius coming under scrutiny spooked foreign institutional investors (FIIs). The budget stated that if an FII or non resident desires of availing of tax treaty benefits, then a tax residency certificate alone would not be sufficient. Earlier for FIIs situated in Mauritius, the tax residency certificate would suffice to avail of treaty benefits.

This proposal negated the positive proposals of the Union Budget. The other factors that also contributed to the disappointment were that the budget fell short of expectations, the surcharge on incomes beyond a threshold limit, the excise hike on certain sectors. The expiry on the futures and options market also dampened the sentiment.

The carnage being witnessed in the markets over the last week or so especially in the small and mid cap segment has made some of these companies look very attractive and at current and further declines could generate excellent returns for those investors with a time frame of over a year. The large caps have also been beaten down on the day of the budget which make these stocks look all the more attractive both for short term as well as long term investment.

With a dismal performance of GDP at 4.5% for Q3 and taming of inflation, there are hopes that the Reserve Bank of India may cut interest rates at its meeting in the month of March. This move could be a major trigger for the markets to reverse its downward trend.

With a growth oriented budget, a possible cut in interest rates, and if aided by a good monsoon, the markets could be in for a major move on the upside and investments at current rates and further declines could generate huge returns for investors.

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