Budget tells how the FM is scary about the current global crisis!

Markets spiked after the election results expecting some financial reforms like disinvestment, insurance reforms etc., but the current FM completely ignored the opportunity what Indian voters given to him. From last decade India is suffering with political problems like ‘unstable governments’. UPA leaders repeatedly pointed out of that we are not having the right strength to go for the financial reforms. After the election results they got the great opportunity but for the first year they completely ignored the opportunity.

After this budget one thing is clear that our FM is much more worrying about the ‘global recession’ and is having doubts on the ‘recovery’. He has not taken any significant moves on the either positive or negative side. He is very scary about the recession that is very clear after the budget.

He is going with the 6.8% fiscal deficit in FY10 and even in the press conference after the budget he has not given any clear picture that how he is going to get that huge money. Bonds rallied very sharply anticipating that government is likely to borrow more.

What results in the near term after the budget for the India Inc.?
1. Government had chosen the borrowing route instead of the disinvestment route so government should buy more and more bonds from the open market.
2. Due to the high base effect inflation looks to be at the very low levels and it doesn’t mean that prices are low. So, on this context too we can not expect the more rate cuts as inflation is low.
3. Due to the above two reasons we can expect the ‘rise in interest rates’ in the upcoming months.
4. The introduction of MAT could slightly have negative impact on the profits of the India Inc.
5. The main negative in this budget is that investors (FIIs) LOST confidence in Indian markets due to poor financial measures in the finance bill.
6. The fiscal deficit is likely to go beyond the 6.8% due to the non-budget expenses.
7. So, there is a chance of another rating down grade to India. Of course right now, no firm has that guts to down grade India they just warn about the fiscal front but in the upcoming months down grade can happen.
8. So, markets likely to correct not because of panic selling but because the unwinding of the current positions. FnO data too clearly tells the fact that FIIs not shorted in the current fall they are just unwinding their positions.
9. The current correction is a healthy one to form a base to the new bull market. For FY10 we can not expect more from the market from the current levels. Markets going to fall below the 4000 Nifty for sure and one great relief is that some MF houses still sitting with the huge cash levels and we can expect that they got the chance to deploy the cash which will give some cushion for sure in the upcoming days.

with thanks
Be and Make