Post budget the Indian stock markets have tanked big time – why?
I think overall the budget is not bad.
However timing of some of the budget proposals and the absence of important big steps have give disappointments to the stock market players.
While there is a global slowdown and companies are struggling to sustain profitability the worst that a government can do is raise corporate taxes.
Mr. Pranab Mukherjee has done well on that count by not changing the Corporate Tax rates. But, that doesn’t give that much cheer. It would have been fantastic if he had given a temporary relief and announced a small cut in Corporate Tax rates – a cut of even 2.5% would have made marketmen happy.
But the worst to happen was raising the Minimum Alternate Tax from 10% to 15%. This is bad timing. When the Companies struggle to keep cash the worst one can do is ask them to shell out additional taxes, even if a set-off was available for an extended period. Who is so much bothered about the set-off that is available over a period of 10 years instead of 7 years?
The fact that Mr. Mukherjee didn’t announce any big infrastructure projects or sops for the Infrastructure sector also acted as a big dampner. Everyone expected that the amount of allowance given for interest payments for housing loans would be increased in the budget. That would have given a boost to the Banks (Housing Finance) and Residential property developers. That has not happened.
Investors also expected some disinvestment proposals to be announced. Even that has not happened. Finance Minister has gone record that he wanted to get better valuations and hence not announced any disinvestment in public sector undertakings. However, if he had spelled enough measures in the budget to boost investor confidence, the valuations would have improved which would have paved the way for higher valuations for Government disinvestments.
Another dampner according to many financial experts is the increased fiscal deficit at 6.8% of the GDP. It means that much more paper will be printed to bridge the gap. It might have inflationary effects in the long term.
Mr. Mukherjee has also gone record saying that he might announce projects and disinvestment plans outside of the budget. He can use that as tools to boost the market sentiment. One has to wait and watch.
Thankfully, this budget is only for a short period and we will have a fresh budget in eight months time, in February 2010.
So where will the market slide stop?
I think the stock markets generally are more emotional than one would think. This phase of slide in the Indian stock markets will halt within a week or two and this appears to me one of the best times for making fresh investments.
