Quotes Proverbs Sayings

Only in finance can an old idea be held up as novel and hugely profitable. In

fields such as chemistry or physics, progress is cumulative. In finance, progress

is cyclical. - James Grant

Budget 2010

My takes on budget:

· I I like the cut in personal income tax. It leaves a large sum in hands of consumers. With 50% of population below 25 years of age, such a large cut will spur consumption. And the recovery last year is led by consumption with companies like Nestle, P&G, HUL, Pantaloon, Asian Paints, Castrol, Hero Honda, Bharti all showing tremendous volume growth.

·

I d I don’t think the government will achieve the non-plan expenditure number. It will be overshot by 10% or so resulting in increase in fiscal deficit by 100 bps (from 550 to 650 bps).

·

St S Structural reforms are a positive.

o Govt has set up petroleum regulator and is now setting up coal regulator.

o They have also talked about reforming the judiciary and bringing down the time to settle cases from 15 years to 3 years by FY12. This can be a big positive for attracting international investors.

o They have brought oil deficit within budget and not through oil bonds. Expect some announcement on petroleum prices deregulation. Move to increase diesel prices by Rs. 2.50 is indicative of resolve to get finances in order.

o Reduction in fertiliser subsidy.

o GST from April 2011.

o New Tax code, new companies bill and new regulations for financial sectors are some of the other things which government is focussed on in an effort to deliver better governance.

· B Budget is likely to fuel inflation. I expect margins in this quarter to fall due to higher raw material prices. Increase in excise duty and petroleum prices would add to cost push inflation. Results for march quarter will be impacted due to pressure on margins across all industry segments.

· F Focus on infrastructure through PPP continues. This should ensure GDP growth of over 10% in next 2 years (my own assessment is if we get road sector right, growth could accelerate to 12% per annum in 3 years).

o We are going to see significant addition to power capacities over next 4 years.

o Roads are already upto 9 kms per day from less than a km a day and expected to reach targeted 20kms a day by June.

o Urban infrastructure projects in many cities taking off.

· R Revenue growth, specially direct taxes, maybe much greater than forecast. I remember in Chidambaram’s time direct tax revenues were growing at 40% per annum.

FM has played to the gallery by giving a fiscal deficit number which the market was looking for (though looks extremely difficult to achieve). However I would be cautious in the markets as valuations are determined by actual profits of the companies and large cap stocks are already stretched on valuations and this quarter should see significant margin pressures.

And I expect inflation to pick up significantly leading to tightening of interest rates. So watch this factors as biggest risks to markets.

Enjoy