Budget Out......Markets Tank.........Have the Markets Over-Reacted??

The big budget is finally out.......The markets have crashed....The expectations were definitely high and it seems that the liquidity gush one has seen in recent weeks will come to a halt. The markets spiralled downwards from about 15000 levels intra-day to below 14000 levels , finally settling at 14043. Nifty tanked well below the crucial 4200 mark.

Markets were clearly disappointed as there was nothing materialistic regarding disinvestment and no mention of FDI reforms throughout the speech. Good news however is the abolition of FBT and CTT. The removal of commodities transaction tax (CTT) is a big positive for trade on commodity exchanges. Implementation of GST by April 1 2010 as committed by FM is a big challenge given the time constraints. The 6.8% fiscal deficit clearly spooked the markets. In addition to this around 4 lakh crores of borrowing by the govt had bond prices crash. No mention of any reduction of STT is another factor for the downside. The sector that benefits directly is the oil and gas. The setting up of national gas grid will help companies like GAIL, Indraprastha Gas,GSPL etc. UID project will open up opportunities for companies like Bartronics and IT (Large , Mid and Small Cap).

Clear focus of the budget was to support existing schemes like NREGS and JNNURM. There is a clear shift to support rural India. It is because of rural India that India has managed to achieve above 6% growth. The GDP target of 9% by 2012 is an ambitious target. This rural thrust is expected to open up new avenues for companies looking to expand their footprint.

On the corporate side increase of MAT is a negative. There was expectation that corporate tax rates could be cut. However, they have been maintained at same levels as of last year. The duty drawbacks have been continued. The extension of STPI scheme by another year is positive for IT sector. ITC has probably rallied for first time in last few years on budget day as there was no mention of increase of taxes on cigarettes. Real Estate had crashed as there was nothing to address their concerns of poor off take. Bank stocks crashed as bond yields jumped higher.

On the personal front increase in exemption limits by Rs 10000 is positive. The day is finally over and come tomorrow we will take cues from global markets and chart our own areas. Whether we go to 12000 or 20000 remains to be seen. This correction is definitely good for ones who have missed the rally. The best returns on investments are made in the long term and this is one of the best possible times to invest in Indian equities if u believe in the India growth story. This budget clearly shows the focus areas of the govt and I believe that in future it would help India propel to 9% GDP growth rate. I would like to conclude by using some lines from an article written by Udayan Mukherjee ' Budget is like a test match but not T20'.

Markets@14.5K.....Budget in 2 Weeks

Indian markets have rallied most of the time in the run up to budget and this time it is no different. However, there is much more euphoria and the pre-budget rally has been quite strong aided by strong inflows and Congess party's stupendous performance in election 2009. The big challenge is now for UPA on the implementation front. Both the foreign and domestic money pushed the bourses, stock prices of almost 90% companies significantly higher than their 52 week lows hit when markets tumbled below 10K. This week has seen a bit of gains getting erased mainly on concerns regarding the monsoon. The 15000 index level on the Sensex still remains a psychological barrier and Negative inflation, Good IIP numbers unable to provide cushion. Had the monsoons arrived on time we would have been 8-10% higher. The sentiment globally has also changed for good and even global markets have rallied. Whenever Indian market rallies more than its Western peers, the talk about decoupling starts. I personally feel it is still a long way off. The budget on the 6th of July is gonna be a make or break budget for the stock markets. There are lot of expectations being built. In case the budget fails to address them, I expect a 1000 point shave off on the Sensex the same day. The underlying tone might also turn slightly bearish. Fresh selling by players who entered the market recently can drag the markets lower but there is always value to be bought in such panic situations.

The defensives like Pharma, FMCG and IT have come back to life in recent weeks after exceptional rallies by stocks related to Infra sectors. RIL had a bad week after the court judgement went against it. The impact of it would be felt by RIL only in 2011 but the stock has seen almost a 200Rs cut. Watch out for Bharti Airtel as the MTN deal might be clinched any time soon. Infra would remain the flavour of the season. Need to see how much money the Reliance Infra scheme collects in its NFO. Agri and Irrigation might be the focus in this years budget and watch out for those stocks. The railway budget prior to the main budget has seen a run up in stock prices of stocks like Kernex, Kalindee, BEML, Texmaco etc.

Another 2 weeks to go for the main event. Some are referring to it as the game changer. Let's hope that the positives outnumber the negatives. Budget has had an impact on the performance of markets every year and I expect this year to be no different.

Disclaimer: All views presented here are personal in nature. Readers need to take informed investment decisions. I have a vested interest in the markets going up and hold RIL amongst the stocks discussed.