Dear Investor,
Over the past few budgets for reasons political (elections) and economic (global slowdown)
the fiscal deficit was allowed to expand. Hence last two budgets had been a disappointment
with negative response from the market.
Budget for 2010-11 is through, thankfully on a positive note. The highlight pre-budget
was the sane behaviour of the markets and expectation management of the government.
Pre-budget volatility was the lowest ever seen. The collective wisdom was to wait for budget
to be announced and then take a call on the market.
The key number looked forward to by the market was the fiscal deficit. This was the main
highlight of the budget. Fiscal deficit is expected to be 5.5% in FY11 vs 6.9% in FY10.
Roadmap is to cut to it to 4.8% in FY12, 4.1% in FY13. No oil bonds, no off budget
items. Transparency in calculation of fiscal deficit gave confidence to the market. Infact
the global investors will be more assured, hence the 300 point salute post budget.
To combat the global downturn, the expenditure & fiscal stimulus tap was opened in the
last budget. The tap will be narrowed was a given & hence the increase in excise by 2%
was not reacted upon negatively. However, half of the increase in tax collection on the
indirect side was given back by way of reduction in direct taxes. The reduction in direct
taxes was the biggest positive. Any one earning more than Rs.300,000 will have more
money in his pocket to spend on FMCG, AUTO, HOUSING & BANKING. This was the second
positive highlight of the budget. The consumer is any day better spender than the
government.
The budget now is more of less discounted, hence the global flows should come into play.
Supply of paper will be on the higher side as companies try to unwind their advantage
by replacing debt with equity. This caps the market upside to 5200 -5300 (17400-17700)
range. The bottom however is secured between 4500-4600 (15000-16000), the level
between which the previous two bottoms were made. Hence, traders play the range &
investors use every dip to accumulate for the next financial year-end target of 6000 plus.
Happy investing
Sincerely yours,
Manish Shah
Associate Director
Motilal Oswal sec. ltd.,
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