Budget 2010 – The unknown story
No matter which electronic or print media you follow – you must have heard all the great the greatness of the budget which got tabled in Parliament on Feb-2010 and which also received a thumbs up from equity markets.
However, we believe that following points were ignored or untold in various discussions and chat forums.
1. Fiscal consolidation of 5.5 for FY11 and 4.8 for FY12 is very aggressive target. Very difficult to achieve.
2. IT escaped with MAT scale up of 18% from existing 15% with no say on removal of STPI privledges etc. But that may not be far off.
3. Govt. is showing concern on Inflation but actully has done just the opposite in budget. He gave more money to people by cutting IT and in turn told them to spend that money to buy Inflated goods and services. RBI had to bite this bullet through subsequent CRR/SLR/rate hike – to arrest further inflationary pressure. Additionally, service tax on realty for even the work in process transactions is a bad blow – this is being passed on to customer straightaway. This is Inflationary push.
4. Spike of market rise on budget day was primarily on account of short covering more than any real greatness in budget. Market was Put heavy /shorted aggressively leading upto budget. The euphoria will take a few additional day to die.
5. GST implementation will be hurculean – states share of pie will reduce and they might resist. Many of them infact. April 1 deadline is ok type.
6. Beaten down sectors (Auto/Realty) bounced because they expected far worse then what they got. Auto thought that ED hike would be in excess of 2% and even small car segments will be touched considering their huge top line growth in that sector. They escaped. Realty expected some strict credit tightening (Inlflation control) measures then what it finally got. However, long term view of credit tightening is realistic and we expect that outside the purview of budget – RBI will come up with stricter rate measure.
7. Most interesting thing in market on budget day was that as Puts eroded by 60%-70%, the Calls barely added 20-25%. So run up of market lacked serious conviction. Just goes out to show that while Puts and short positions were squarred, CA hardly were bought. I do not remember seeing such a trend in atleast any of budgets I have witnessed. People holding hybrid strategy of PA-CA combine were in trouble if they were PA heavy as majority were and these were the guys who sold their PA in a hurry.
8. Govt. is hell bent on killing the OMC’s. I expect even a partial rollback of fuel price hike. Kirit Parikh recomendation which created so much expecatation is put on back burner.
Positive of Budget.
1. NBFC and Private companies – beneficiary of licences by RBI to have banking services. My guess is that – many corporates like ADAG (RELCAP), Bharti and India Bull will have their banking arm
2. Nothing said on Long term capital gains tax. Big relief.
3. Disinvestment numbers of 25k crore is good. Implementation will be key. New paper like CIL will be welcome rather than flop show of FPO.
Going forward:
Nice budget is down and dusted – but nothing globally has changed. We will continue to dance to global shenaigans henceforth which is not very encouraging. Expect bit of dip in March series itself.
Global economy is weak and those worries will come back into the Indian market from Monday.
Positives: L&T, JP Associate, RelCap, DLF, NTPC, Gammon, Simplex
Negative: Reliance, OMC (nothing said on LPG hike was surprise), ONGC, Auto
Neutral: IT (will gain on dollar appreciation)
Bottom line is that Govt through IT savings for salaried by its right hand and has pulled more if not equivalent in terms of inflationary pressure in many sectors. We believe lot of policy sensitive information will come outside the purview of budget and will be inflationary and painful.
One thing is for sure – the higher we rise the fall will be more painful – because fall is imminent.
Posted: March 3rd, 2010 under mY wEbPaGe.