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‎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.

Higher tax revenue from higher growth

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

The 2013-14 budget got completely out of hand because of a whopping shortfall in tax revenue. Development outlays had to be drastically cut to manage the fiscal deficit.

The key to the budget is revenue. The ratio of gross tax revenue to GDP reached a high of 11.9 percent when GDP growth was at its peak of more than 9 percent in 2007-08. Since then, both declined and the ratio has been in the narrow range of 10-10.7 percent. GDP growth is a painless way of raising revenue.

India Markets Weekahead: Pre-budget rally may be muted

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A man looks at a screen across the road displaying the election results on the facade of the Bombay Stock Exchange (BSE) building in Mumbai May 16, 2014. REUTERS/Danish Siddiqui/Files(Any opinions expressed here are those of the author and not of Thomson Reuters)

The Nifty touched a new high of 7,700 before cracking on Friday to slip about 0.5 percent for the week. This was primarily triggered by the unrest in Iraq and the subsequent rise in crude prices.

The markets were also overbought aided by a relentless rally since May 9‎, with the CNX Nifty climbing about 16 percent, S&P BSE Midcap Index rising 26 percent and the S&P BSE Small cap index jumping 35 percent. The last one-month saw 115 multi-baggers with 92 percent of traded stocks gaining during the period. The probability of picking a loser was minimal. It seemed making money had never been so easy.

How to get India on the highway to high growth

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

The president’s address to parliament this week lays out the new government’s roadmap to get India’s economy back to high growth. That will take time and is not easy either.

True, the BJP government led by Narendra Modi inherited a weak economy – growth was a mere 4.7 percent; industry was static; there was no employment generation; and inflation was at over 8 percent. The only comfort was that foreign exchange reserves exceeded $312 billion.

The primacy of good governance for Modi

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

At his second cabinet meeting, Prime Minister Narendra Modi unveiled a 10-point programme that set out a comprehensive agenda for his ministers. The agenda is a good cocktail of short-term needs and long-term objectives.

The underlying message, however, is of good governance. That is what Modi has been harping on during his election campaign and which he sincerely believes is the secret of his success in Gujarat.

Food prices matter: here’s why

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

Investors are cautiously starting to examine the topic of food price inflation once again. The United States recently saw a sharp rise in producer price food inflation. Further down the economic development ladder, producer prices for the food manufacturing industry of China have been steadily creeping higher from the lows reached two years ago.

The rupee at a crossroads

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

The rupee was tossed around quite a bit in the last 10 months. It dropped to a low of nearly 69 to the dollar, creating an economic crisis, before it recovered and is now at 59-60. The threat is not that it may drop once again, but that it may appreciate further and upset the economy in other ways.

Why would the rupee appreciate? Because there are expectations the Narendra Modi government will facilitate development and enable the economy to get back on course. This is what drove the Sensex beyond 25,000. But the currency market was more stable in spite of the huge inflow of $2.2 billion in 10 trading days of May.

Steps the next government should take

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

India’s economy is tottering, inflation is too high and growth too low. The Congress-led UPA government allowed the economy to drift during its second term. Why? Because it did not focus on real issues, failed to govern effectively and did not carry out any significant reforms.

New legislation became almost impossible, with coalition partners such as the TMC and DMK threatening to pull out (and they eventually did). On top of that, successive scams made it impossible for the government to function normally.

India Market Weekahead: Ride the election rally with some caution

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

The Nifty touched a high of 6758 during the week, part of a market rally for 10 consecutive sessions – the longest streak in five years.‎ An overdue correction set in towards the end of the week with the Nifty ending flat at 6694.

Advance-decline data suggests that interest is shifting to the small and mid-cap space where advances outpaced declines. Although we are touching new highs, the missing euphoria indicates investor caution  that is good for the health of the market.

India Markets Weekahead: ‎Ride the election rally but skim the profits

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

The market began the week on a high note after an extended weekend but could not sustain the rally due to profit booking. The Nifty was at a high of 6570 on Tuesday but the rest of the trading days remained lackluster and it ended the week with a marginal loss – at 6495 after the extended trading session on Saturday.

Although the week was marked with heightened political activity as candidates for the general election were announced, the U.S Federal Reserve had a sobering effect on the markets. The Fed decision to continue with further tapering of $10 billion and focus on interest rates, which should start rising sooner than expected, saw corrections in most markets as the dollar strengthened.

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