All set for Budget Day

Jul 07, 2014, 08:51 IST | Arun Kejriwal

This week will see the Railway and Union Budgets presented by the new government, as a billion people wait and watch with anticipation and hope

The momentum in the markets seems to have moved up a few notches with the semi-finalists of the football World Cup now in place. The movement last week was across the board so much so that not a single sectoral index ended in negative territory.

Stockbrokers monitor share prices on the National Stock Exchange (NSE) terminal at a brokerage firm in Mumbai
Stockbrokers monitor share prices on the National Stock Exchange (NSE) terminal at a brokerage firm in Mumbai

The benchmark indices ended with yet another new life time highs with the BSESENSEX gaining 862.14 points or 3.43 per cent to close at 25962.06 points. The Nifty gained 242.80 points or 3.23 per cent to close at 7,751.60 points.

The broader indices like the BSE100, BSE200 and BSE500 gained similar or marginally better at 3.31 per cent, 3.42 per cent and 3.48 per cent while the BSEMIDCAP gained a significantly higher 3.70 per cent and the BSESMALLCAP even more at 4.85 per cent.

Amongst the sectoral gainers were BSEAUTO up 5.91 per cent followed by BSEPOWER up 5.18 per cent and BSEHEALTHCARE up 4.97 per cent. As mentioned before there were no sectoral losers and the least gainers were BSEIT up a tad at 0.43 per cent followed by BSETECK up 0.84 per cent.

Narendra Modi and his government with the budget will have to fulfil their promises. Pics/AFP
Narendra Modi and his government with the budget will have to fulfil their promises. Pics/AFP

In individual stocks, the top gainers were from the auto pack led by Tata Motors up 8.37 per cent, Maruti Suzuki up 7.88 per cent and Mahindra & Mahindra up 6.5 per cent. Other gainers included Hindalco up 7.52 per cent and BHEL up 7.33 per cent.

In other stocks, fertiliser companies Chambal Fertilisers rose 13.78 per cent while Deepak Fertilisers rose 15.84 per cent. On the losing side were two-wheeler manufacturers with Hero Moto losing 1.52 per cent and Bajaj Auto down 0.43 per cent whilst IT major Tech Mahindra lost 0.54 per cent.

Call it by any name be it pre-budget, call it optimism call it hope and expectations, the markets were on a roll. It was fuelled by money being invested by FIIs who have put in Rs 5,200 crore last week and have in the first six months of this calendar year invested Rs 62,606 crore or roughly 10.5 billion dollars.

Domestic institutions have slowed down their sales significantly and have sold shares worth Rs 645 crore in the week and Rs 6,848 crore in the six months. Broadly speaking, the sales by domestic institutions have been a tenth of what the FIIs have bought.

The week ahead will be dominated by Parliament and the proceedings would kick off with the Railway Budget being presented on Tuesday followed by the Economic Survey on Wednesday and ending with the Union Budget on Thursday.

With passenger and freight hikes already being done what would be interesting to note is the modernisation, safety and growth plans that the minister would talk of. I believe the time has come to take the Railways to the capital market and begin by offering 10 per cent of the company to investors. This would bring much needed funds and also make the railways more accountable.

The budget would have to be tough as our economic condition and finances have been stretched. No one expects the FM or the government to dole out money but they expect that the unbridled subsidies would see some checks being placed. There is expectation that the FM may give higher allowances and raise the slabs even though there may not be any tax cuts.

The world wants to invest in India as we have the potential to see our GDP rise from 4.5 per cent or thereabouts to 6 per cent in the next four quarters. The markets and industry expect a clear roadmap for GST and expect it to be rolled out from the calendar year January 2015 or financial year April 2015.

This alone is expected to add about 1.5 per cent to 2 per cent to the GDP. The markets would like to see clarity on the divestment programme and capitalisation of state run banks. Of course the usual abolition of CTT (Commodities Transaction Tax) and STT (Securities Transaction Tax) or maybe a cut in rates is also expected.

Primarily, the key areas which need to be addressed are issues of policy paralysis and lack of transparency. The first has been tackled to a great extent by dismantling EGOM (Empowered Group Of Ministers) and IMG (Inter-Ministerial Group). The second has seen decisions being taken as there is no coalition politics and also the cabinet is smaller. The third area is clarity on laws and taxation.

The system of retrospective amendments which vitiated the investment climate is likely to be done away with. The PM wants to make India a manufacturing hub for various products including defence. It is believed that FDI in defence would be raised to maybe as high as 74 per cent with technology transfer. What actually happens is now a mere four days away.

Infosys would kick off the result season for the first quarter of FY15 with results being declared on Friday, July 11. Coming the very next day after the Union Budget its performance may be overshadowed by the budget. The markets are buoyant and have entered the budget week.

Expectations are running high and maybe difficult to meet. Nobody expects freebies but they particularly FIIs and people looking to invest in India want a clear road map to induce investments into India. Keep your fingers crossed and hope that the man, whom every third Indian who cast his ballot voted for, delivers. Stay invested and do not panic.

Arun Kejriwal is founder of the Mumbai-based advisory firm Kejriwal Research & Investment Services Pvt Ltd. Readers are invited to read more about these and other issues on his website

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