Bit of a softie

The neither here nor there budget has chosen the middle path

The Finance Minister, Pranab Mukherjee on Monday, February 28, presented the Union Budget for 2011-12. The reactions were mixed as expected and very clearly it appears that the budget has tried to balance everything.
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The budget is a little populist, a little political, does a little here and there but fails to deliver any big-ticket reforms.
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The statue of a bull being cleaned yesterday at the Bombay Stock Exchange (BSE) before the budget was read out

The important thing that it does is to direct a roadmap towards moving to Direct Tax Code (DTC) and General Sales Tax (GST) in 2012, if not 2013.

Volatility
The markets last week saw the BSE SENSEX losing 510 points or 2.88 per cent while the NSE NIFTY lost 155.40 points or 2.93 per cent. Yesterday, the markets saw huge volatility with the BSE SENSEX moving intra-day between a high of 18,296 and a low of 17,718 before closing with a gain of 123 points. The NSE NIFTY saw a high of 5,477 and a low of 5,308 before closing at 5,333 points a gain of 30 points.

Very clearly, the intra-day rally could not be sustained and the market lost a significant portion of the gains. The question that comes to mind is why this rally and why this fall? It was widely believed that excise duty rates would be restored to those prevailing before the global meltdown and raised across the board, which did not happen.
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This brought about a rally and large amount of short covering of positions. Once the short covering was over and the fine print of the budget became clearer, the market rally gave up almost 80 per cent of its gains.

Significant

There is one significant event, which has been announced from the stock market perspective. Earlier only Foreign Institutional Investors (FIIs) registered with SEBI were allowed to invest in the Indian capital market. Now, the Union Budget proposes that subject to Know Your Client (KYC) norms being fulfilled, foreign individuals would be allowed to invest through the mutual fund route in India.

This throws up lot of opportunities and would allow larger capital inflows into the country, which is good and bad for the economy. The details of this scheme would be available at a later date and it is only at that time that clarity on this subject would be available. At this point, there would be plenty of discussion on this subject whether it is good for our economy or not and also whether it is an indirect route for money currently parked overseas, to be routed into the company.

Middle

The budget is neither good nor bad. It has chosen a middle path and chosen to abstain from major reforms or being a path setter. It is soft and is a middle path budget talking about the concerns of inflation, rising crude oil prices and corruption. It chooses to address issue of black money by more agreements of double tax treaties.

Digest

Coming to the issue of stock markets and investors, I believe the markets will need a couple of days to digest the budget implications. During the course of the week, the immediate hurdle would be crossing yesterday's intra-day highs while the previous week's lows would be supports.

I believe the markets would remain range bound and wait for the next week by which time various experts would have discussed the budget and its implications threadbare. Summing up, I believe the road map for DTC and GST has been spelt out and the opportunity for individual foreign investors through the mutual fund route could be a big opportunity once global markets stabilise.

Arun Kejriwal is founder of the Mumbai-based advisory firm Kejriwal Research & Investment Services Pvt Ltd. Readers are invited to read more about these and other issues on his website https://ak57.in
Disclaimer: No financial information whatsoever published anywhere in this newspaper should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever.

All matter published here isu00a0 for educational and information purposes only and under no circumstances should be used for actual trading or making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment or trading decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at his or her risk.

Oil's not well

With the budget behind us and heated debates and intelligent analysis set to continue for a couple of days now, it is time to focus on the investor. I would advise investors who really want to take a directional call, they can buy Nifty 5,500 call options for a holding period of three to five days.u00a0

If the investor is bearish on the market, he can buy 5,200 Nifty put options for a holding period of seven working days. Small, trading positions can be created in EPC Industries, Ed-Serv, EIH hotel, IRB Infra and Pantaloon Retail.

Libya

The uprising in Libya, now already spreading and feared to spread further to other oil producing Arab nations as well, resulted in global equity markets being subdued. Fearing more unrest, other Arab nations have started allocating many social security schemes with Saudi announcing $10.6 billion in new funding for housing loans through Housing Development Fund, $9.7 billion in funding to increase the capital of Saudi Credit Bank, $933 million to help the needy to repair their homes and pay utility bills, $3.9 billion to support the General Housing Authority, while Algeria officially declared lifting the state of emergency in the country after 19 years.
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The dollar denominated commodities are bullish, which includes gold, silver and crude, but the volatility can increase during this week. So, it is prudent to create small trading positions or it is even advisable to stay on the sidelines.

Alex K Mathews is the author of Financial Services And Systems, as well as Option Trading: Bear Market Strategies published by Tata McGraw Hill. He is also the technical and derivatives research head of Geojit BNP Paribas Financial Services Ltd.

The author may have a vested interest in investments he has recommended. Feel free to e-mail him at alex@geojit.com. Geojit BNP Paribas has membership in, and is listed on, the National Stock Exchange and the Bombay Stock Exchange

Disclaimer: No financial information whatsoever published anywhere in this newspaper should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here isu00a0 for educational and information purposes only and under no circumstances should be used for actual trading or making investment decisions.

Readers must consult a qualified financial advisor prior to making any actual investment or trading decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at his or her risk.

Whews and boos
Some relief, some rankling at Finance Minister Pranab Mukherjee's Union Budget

Vijay Kalantri
President, All India Association of Industries (AIAI)
The Union Budget is a balanced budget, but has lost an opportunity to give a much-needed impetus and thrust to the infrastructure sector as per targets. At the same time, the budget should have been indexed to match the inflation index, while raising the various limits of Direct Taxes.
The proposal to introduce the Goods and Service Tax (GST) and Companies Bill in the current parliament session and implementation of Direct Tax Code by 2012, will help industry and trade to plan investments and will thus give an impetus to growth. The introduction of Service Tax on services should be reviewed.

Sunil Mantri
President MCHIu00a0
The Maharashtra Chambers of Housing Industry (MCHI) described the Union Budget as, "a budget with a few positive steps focussed on the common man who is interested in buying a house in rural and urban areas."
Said Mantri, "I am satisfied at the government's intention to bring in the Central Electronic Registry, and FDI liberalisation that are likely to help the real state sector to grow faster.The MCHI was expecting the restoration of 80 IB of income tax in respect of residential units measuring less than 1,500 sq ft area, easy accessibility of funds for project execution, etcetra. These issues were not addressed,"

Sanjay Chamria
Vice Chairman & MD, Magma Fincorp Limited
Belying lower expectations of the markets and people in general, the government has delivered a very positive, inclusive and growth-oriented budget. The government seems to be firm on pursuing further reforms and the intention is articulated by the Finance Minister in his budget speech seeking to introduce bills on banking, insurance; pensions and companies in this session or this fiscal which will restore confidence of foreign investors.

Though the budget announced an increased FII limit from USD 5 bn to USD 25 bn and higher infra spend at Rs 2.14 lakh crore, we would have liked to see more concrete measures on infrastructure project execution and streamlining of related governmental clearances. Even now, land acquisitions, environmental clearances and political issues continue to keep stalling manyu00a0 infra projects.

Chanda Kochhar
MD & CEO, ICICI Bank
The Union Budget is a growth oriented budget that seeks to build on India's strengths and to address the challenges that we face. The budget seeks to build on our growth drivers through infrastructure and social sector development, address challenges of food inflation and of fiscal management and promote inclusive growth.u00a0

Puja Marwaha
CEO, CRY India
We expected the government to stand up to the promises it made to India's children by signing the UN's Child Rights Convention 18 years ago. But, the budget shows a minimalist approach towards children's rights. We cannot resolve large scale problems, unless the country's policy makers stand up for what is right for India's children.

Some of the salient features of the budget include:
Increase in tax exemption limit from Rs1.60 lakh to Rs 1.80 lakh
Creation of a new Senior Citizen category of age 80 and above with tax exemption of Rs 5 lakh
Lowering the existing senior citizen age group from 65 to 60 and increase in tax exemption limit to Rs 2.5 lakh from 2.4 lakh
Corporate surcharge has been reduced from 7.5 per cent to 5 per cent but Minimum Alternate Tax (MAT) has been increased to 18.5 per cent from 18 per cent
Developers of SEZ would have to pay MAT
Excise duty of 10 per cent levied on branded garments
New services brought under service tax which include healthcare with some exemptions
Air-conditioned restaurants serving alcohol to attract service tax
Hotels charging Rs 1,500 or more per day to attract service tax
Higher allocation on education, NREGA and Bharat Nirman programmes
Farmers to receive higher loans and prompt repayment to be rewarded by lower interest rates
Impetus for creating warehouses, food cold chains and processing centresu00a0u00a0
Divestment of public sector companies to yield Rs 40,000 crore in 2011-12
All these measures are more or less adjusted in revenue terms with there being a net revenue loss of Rs 200 crore to the Central Government