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Straight from the Specialists

‎India Markets Weekahead: Correction could follow budget week

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

Last week’s robust pre-budget rally belied expectations, with the Nifty closing up more than 3 percent at a record high of 7,751‎. Automobile sales, manufacturing PMI as well as services PMI showed an uptick. The Iraq turmoil seems to have taken a back seat with oil prices receding from a nine-month peak. A rally in world markets, with life highs for the DJIA and S&P 500, also aided sentiment.

India’s fiscal deficit in the first two months has already touched 45.6 percent of the full-year target. Though this would have been a negative indicator, the markets welcomed Finance Minister Arun Jaitley’s remarks about focusing on fiscal consolidation against “mindless populism“.

The budget on July 10‎ would be a tightrope walk for the finance minister. Political necessities would not allow a drastic reduction in subsidies, although Jaitley may set a road map for their gradual reduction. Income tax payers may not get a huge relief but there could be a token increase in exemption limits.

It would be important for the finance minister to direct new investments into productive asset creation rather than pure financial investments, which we have witnessed during this “rally of hope”. The government needs to kick start the economy and, for this, they need investments to flow in not only from overseas institutions but also channelize domestic savings. I expect the finance minister to provide tax breaks for investments, especially for infrastructure and manufacturing.

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