TIA Article – 090716

Few Words on Market – Tamil Nadu Investors Association – TIA

090716: The said hype in the market over the budget outcome finally died down after the economic reality punctured the expectations balloon. The single day dip of around 900 points reflects the sentiments of investors. We, in the last edition had clearly expressed the discontent over the hype the markets built up over the budget fueled by various people on the media, and also mentioned that any negative surprises can take Sensex all the way to 12000 – 12500 index levels. As expected the market fell hard and corrected almost 15% to low of 13220 on 13/7/09 from the recent peak of 15600. There has been some buying on signs of improving fundamentals and supportive US market, but the target still holds good in case situations worsen and that would be the higher bottom or call it as the long term support on next correction.

The budget was not able to cheer the market since it has spoken lot on spending but the FM has remained silent on where from he will get the money to spend? Markets require immediate directions, this budget has many hidden directions which bulls are not able to identify. The focus on rural spend, increase in the spending budgets in programs like Jawarharlal Nehru National Urban Renewal Mission & Rajiv Awas Yojna for the urban infrastructure, increase in spending budgets for NHAI will lead to indirect addition to the GDP over next few years.

The FM is walking a tight rope on various accounts, FII’s are spooked on 6.7% fiscal deficit numbers, if state numbers are added we would be at around 11% deficit which can even lead to rating of India as unsafe and negative by the poors! The best way is to improve the growth numbers is by fuelling rural India’s growth. Rural India has been growing rapidly over last few years and the reason India was not much effected in recession like other developed countries is because growth from rural side has been a major comforting factor.

Many were disappointed on lack of announcements on divestment, which can be a huge revenue generator for the government. We feel it’s a strategic planning by the FM not to speak about disinvestment as the topic could be very sensitive to there political alliance partners. The government may sell stakes in various PSUs from time to time but may keep the controlling stakes. The economic survey which is known to be mirror of the budget spoke about target of 25000 Crs per year out of disinvestment but the budget target of just around 1100 Crs has not gone well with analysts. Two PSUs are likely to come out with IPO’s next month and successful noises on that front may comfort the foreign investors.

We feel the budget is not negative since the sops which were announced in the stimulus packages have not been rolled back. Individual tax payers will have to wait till they get a higher tax exemption limits. The removal of surcharge is not going to benefit the aam admi as the same is good for people earning above 10 Lacs per annum. The aam admi could have got better deal by keeping the surcharge and increasing the basic tax exemption to atleast two lacs.

The first impression of investors is that the budget has nothing for them, but if the spending targets are achieved it can bring back the country on growth trajectory which will deliver indirect benefits to the population as a whole. The government should make sure the money is spent fully where it is aimed and nothing is lost in the transition.

If markets correct again buy on every dip, as we see the above mentioned levels to hold untill really something severe happens. The Sensex will find resistance at 15200 – 15500 levels and may breach them if Dow Jones decisively trades above the crucial DMA’s. There is expectation in the market that interest rates may go up by upto 100 bps but we feel they will not and if they do it would be maximum 50 bps.

Disclosure:- It is safe to assume that the author may have interest in the sectors recommended in this news letter. Seeking personal advice from your Financial Advisor is recommended before acting on any of the substance given herein. The numbers, figures, etc., presented may have been taken from various sources.

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