The stock market's reaction to the Union Budget could have been vastly different if the Finance Minister had deleted two small lines from his Budget speech and added one small line in turn.
From his perspective, it wouldn't have mattered much either. He should dropped the bits about short term capital gains and STT treatment, and perhaps added a modest 5% reduction of the corporate surcharge and the sentiment would have been vastly different.
Corporates and analysts would have had some reasons to cheer, investors wouldn't have been peeved, the FM wouldn't have had to sacrifice much by way of revenues either and the Sensex may well have closed above 18000. Anyway, as they say, if wishes were horses, beggars would ride. Yet, it seems a bit unfortunate as there were many positive things in his Budget which investors should actually have focussed on had he not blinkered them with the silly capital gains tax hike.
The other contentious bit is the Rs 60,000 crore tax waiver. I know one can call it 'robbing Peter to pay Paul' and dismiss it. One could even say that money is being put in the hands of people who need it most, yet this is just not good economics. And I am not even discussing how the government will provide for it and what it will end up doing to the fisc. All I know is that the government has said that it will 'take care' of this writeoff and banks won't have to take the rap, I await the fineprint eagerly.
Also, this plus the Pay Commision increases will probably take the deficit well beyond the FRBM targets, but I suppose priorities in an election year are about getting elected and hardly about fiscal prudence. Also, if I were a farmer, I would hardly ever want to repay any loans to banks. We are simply opening up fissures for the future and that is bad economics. Yet, let's limit ourselves to the narrow world of stock markets for the moment and say we are happy that this will lead to a one-time cleanup of bank balance sheets and therefore bank stocks should actually rally, however perverse that may sound.
The good thing from this Budget is that there will be more money in the hands of most people. If you are a salaried individual, you should be happy, if you are a farmer, you should be very happy. Now the government's motives may be to win your heart and your vote, but it also acts as a potential stimulant to sagging consumption and growth in the economy. People who have thousands of additional rupees in their account can certainly choose to spend more on discretionary items like FMCG, durables, phones, autos.
And to make things even better excise duties have been cut on a host of items like two-wheelers, small cars etc which will make them slightly more affordable. All this can act as genuine demand and consumption stimulants which is exactly what the economy needs today. Maybe for the next fiscal year, we will see this trickle to higher revenues for many of these consumer-led sectors. Sadly, sectors like fertilisers, textiles and infrastructure which are the punter favourites before any Budget didn't get much which is why their stocks were sulking by the end of the day.
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I don't think this Budget deserves a market selloff. Global markets permitting, we could actually see the losses getting recouped early next week. Does it do a whole lot to change sentiment dramatically and lead a break out? I doubt that either. Essentially we remain in a trading range and the Budget is not the crutch the market can lean on to jump out of that range.
It's heartening to see that the downward momentum has been arrested and we are not breaking below the supports of 5000 on the Nifty too easily. I suspect we are back to global market watching next week. That, more than the Budget fineprint may well determine where we head from here. It's hardly a historical Budget, but now it's history. I doubt if we will be talking much about it beyond next week. It's all done, bar the shouting.
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