Tuesday, March 1, 2011

Band Baaja Budget .

Investor sentiments have improved after the FM did not propose a hike in excise duty in the Budget. The FM has also proposed to cut the surcharge for domestic companies, which is a positive. The target of 4.6 per cent fiscal deficit by FY12 had the markets happy. The FM has not proposed a hike in excise duty on cigarettes. Infra spending going up 27% is a big positive booster. We are expecting positive impact of 50-60 bps on earnings.
The move to allow foreign individuals to invest in domestic mutual funds is positive.
The increased allocation through the Bharat Nirman program to provide rural broadband connectivity to all 2,50,000 panchayats in the country in three years should bode well for more inclusive and sustained growth. Also stress on reforming education, healthcare and general administration are healthy indicators of future growth.
In the Union Budget 2011-12, the Finance Minister articulated its commitment to fiscal consolidation, infrastructure development, agriculture growth and enhancing governance standards. The Finance Minister has done a credible job in not just over-delivering on fiscal deficit target in FY11, but also clearing demonstrating his commitment towards fiscal prudence by laying down the fiscal deficit target of 4.6%, which is even lower than FRBM mandate of 4.8%. The Budget is also very aggressive in its 9% economic growth target for FY12, given that the economic growth momentum is gradually moderating.
Overall, the budget has laid down a constructive road map for Economic growth and has taken steps to align the existing tax structure with the proposed GST & DTC framework. It is heartening to see that the increase in allocation to infrastructure and education sector has been higher than that in social sector spending. The move to cash subsidy for petrol & kerosene to BPL families is a bold move. Amidst these positives, the key disappointment from the Budget has been very nominal hike in IIFCL’s disbursements targets in the light of our humungous infrastructure funding requirements & lack of focus on attracting FDI, which could have really spurred such inflows in the current environment of easy global liquidity.
The Union Budget 2011-12 has pleasantly surprised market since expectations were at the nadir. Enhancing FII investment in infrastructure bonds will also help in deepening the corporate bond market and will provide a hedge against the more volatile FII equity inflows. Lower than expected government borrowing program of Rs 3.43 trillion (expectations of Rs3.7-3.9 trillion) positively surprised the bond market and provided a much needed sigh of relief. This will not just help the GoI in better managing its borrowing program but will also ensure that there is no crowding out of private capex plans at this juncture which requires pick up in private investment to sustain the economic growth momentum & contain inflation. It is also positive for the banking sector as it will ensure that the upside to the long-term interest rates gets capped. At the same time, the short-term rates will also ease in the first quarter of FY12 with increased government spending & easing liquidity.
Nifty expect to cross its 200 DMA of 5630 and move towards 5700 .
Warm Regards
Atul Sikrai
Sr Vice President & Head Equities
wiTdom investment advisory.

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