Everytime Sachin Tendulkar comes to bat, he is supposed to exhibit a match winning performance – ones you deliver high results, the expectations are that you would do so everytime you are meted out any task. With the budget round the corner, the situation is no different for UPA – led Government. When they won the elections, the market participants were ecstatic, the sensex spiraled about 2110 points. The market continued to trade positively for a significantly long time, the exhaustion started showing only recently.
Every market participant, every sector awaits the Budget speech – the wait is not without relevant baggages, the Finance Minister is expected to spread happiness to one and all – the finance minister should probably get a magic wand to grant everybody’s wish!
Sensex post-budget – Evidencing History
With the emotions running so high, it is interesting to note that the Sensex has not reacted euphorically in the past. History, infact, clearly indicates that the market in the month post-budget has blushed more times, setting the market participants to rant about the losses incurred. Although, this need not necessarily mean that it would turn coy this time round too!
Table1: Sensex post-budget scenario
| Year | Close on Budget Day | One Month after Budget | One Month post-budget |
| 1991 | 1,220 | 1,168 | -4.26% |
| 1992 | 2,831 | 3,802 | 34.30% |
| 1993 | 2,652 | 2,225 | -16.10% |
| 1994 | 4,286 | 3,776 | -11.90% |
| 1995 | 3,487 | 3,460 | -0.77% |
| 1996 | 3,808 | 3,406 | -10.56% |
| 1997 | 3,475 | 3,361 | -3.28% |
| 1998 | 3,643 | 3,231 | -11.31% |
| 1999 | 3,400 | 3,683 | 8.32% |
| 2000 | 5,447 | 5,041 | -7.45% |
| 2001 | 4,274 | 3,788 | -11.37% |
| 2002 | 3,562 | 3469 | -2.61% |
| 2003 | 3,284 | 3,115 | -5.15% |
| 2004 | 4,844 | 5,197 | 7.29% |
| 2005 | 6,714 | 6,511 | -3.02% |
| 2006 | 10,370 | 11,086 | 6.90% |
| 2007 | 12,938 | 12,884 | -0.42% |
| 2008 | 17,579 | 16,371 | -6.87% |
Sectors in focus
Broadly, most social welfare sectors have always stood to benefit from the budget, Mr. Montek suggested that this time round the budget would be popular. There have been clear indications that certain sectors will be stark favorites with the Congress – Education, Infrastructure, Agriculture and Health. These are sectors which are perceived to create better prospects in India, more jobs – the need of the hour and also, accelerate the ancillary businesses which will necessarily thrust the economy out of the recessionary trends.
‘Fiscal Deficit’ has been the hot topic under discussion, with the FY 09 figures hovering around 12.6%, all experts are looking forward for the measures the Government would announce to handle the fiscal deficit effectively. For FY 2010, the fiscal deficit will probably still be high at 9.7% of GDP (vs. 12.6% in F2009). Keeping check on the fiscal deficit is important to ensure low real interest rates for the private sector. The current high level of the fiscal deficit is likely make it difficult for the government to increase its spending to support economic growth. In such an environment, the government will need to augment its financial resources through divestment of its stake in government companies. The Congress, has in the past tried to push the envelope on the divestment proposal, however, the results have been pretty disappointing. This time round, things are going to be slightly different, since the alliance is sans the left parties who were the key members opposing this move.
FDI Dilemma
In 2009 alone India has received about $5.5 Bn of FII money out of a total $23 Bn that has flowed into emerging markets. India received close to 25% of the net outlay to emerging markets. India is cited as the most promising investment destination amongst the emerging markets. There is likelyhood that the investment ceiling for the insurance sector which is currently pegged at 26%. Broadly, there could not be too many changes in the FDI regimen, there has been considerable rationalization in the past, hence, there would not be too much focus herein.
The ‘Aam Aadmi’ hopes that there could be something on the tax front, however, here too the previous budget presentations have brought in behemoth changes and any dramatic regimens are unlikely at this point. Rural support has always been on the agenda, and will continue to be the key point under consideration.
This budget is going to be different in more than one ways, with the 100-day economic turnaround promise by Congress Government, and with sky-high expectations, it is awaited as to how Mr. FM is going to unveil a well balanced and a popular budget!
Until then...Cheers!
Right Horizons - Research Desk
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