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Markets Discounting Budget Views – Any Surprises ?

February 23, 2010

The Indian Markets have corrected pre-budget and are discounting the expectations that are likely to be met and reforms continuing without any drastic changes. BOFA-Merrill equity analysts write,

We think the budget to be presented on Feb 26th is unlikely to change the range-bound market view that we
have. We think the impact of the budget on the markets has been waning over the years since – lot of reforms happen outside the budget and tax changes are marginal. From a market point of view, the Government’s attempts at controlling
fiscal deficit will be the most important – we expect FY11 fiscal deficit at 5.7%.

How does the deficit reduce from 6.8% current year to 5.7% ? Partial reversal of the fiscal stimulus with increase in excise duties and service tax together with tax buoyancy as growth picks up. Adding to Govt coffers is receipts of $12 bn
from 3G auction and PSU disinvestment.

BoFA Merril’s Budget Gainers are – Banks: Agriculture debt relief extended to June, 2010. SBI, BoI, Union gain, Capital Goods, Utilities – Reduction in import duty on coal and Reliance gains if IT Act is amended to confirm 7-year tax holiday on gas produced from all NELP blocks

Likely Losers from Budget – Consumers, Autos, Cements and Metals – if Excise duty is hiked. [Well they simply pass it on to the end user, don’t they ?]

Stay tuned, we will post on market performance – pre and post-budget.

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