iCharts Discussions

[givemegold]

There is nothing much to say - as a lot have been discussed in various media forums. What i did here is, copy and pasted some of the important observations on the budget proposal- that could affect the overall market performance in the days to come.

One thing is very clear... FIIs are really disappointed and would start taking out some money off the table - which means every rise will be used to book some profits.

(Copied and pasted from some articles from Economic Times, The Hindu, Moneycontrol, First Post, Reuters ... many thanks to them)

1.Higher Borrowing by Govt / Bond Yield / Inflation / Rate cut
“It is going to be a challenge managing the enlarged borrowing programme ... Deputy Governor H.R. Khan, who oversees the government’s borrowing programme at the central bank, said.
Even bankers have been critical of the higher government borrowing saying it will impact their overall margins.

Oriental Bank of Commerce chairman and managing director S L Bansal said the Budget is not good for banks as the proposal to borrow more from the markets has already pushed up the bond yields.
“Look at how the yield has moved post-Budget. The market is not liking it and if the yields move up, its not good for a bank,” Bansal told PTI

A high target for market borrowings is likely to keep bond yields under pressure. What is even more disheartening is the budget did not give any clear roadmap for bringing down expenditure in the form of subsidies. Even the disinvestment target of 300 billion rupees was quite disappointing as how the government will achieve this remains obscure. If one were to take a leaf out of the ONGC experience, even doing 50 billion rupees would be difficult. The key would be pricing of the issues.


(2) Budget 2012: Do we need a 1990s crisis to shock us into reforms? The budget has got a near unanimous thumbs down from economists and analysts but very few have indicated what the finance minister could have done differently.

One big threat to growth is coming from the receding capex (capital expenditure). The governmental dis-saving has led to India's savings and investment rate dipping by 4 percentage points in the past four years. The government's own capital account expenses have fallen from 23 percent of total expenses in 2005-06 to around 13 percent. For the current year the government budgeted 13 percent of total expenditure as capital expenses. The revised budget shows that only 11.8 percent was spent in the capital account.

The other major threat to growth is inflation. While global factors are fanning commodity inflation......The bond market greeted the budget with yields shooting to nearly 8.5 percent. In which case growth gets postponed that much more. For the moment it doesn't appear growth will do much better in the coming year.


(3) Budget 2012: Threat to enterprise, mentoring; angel investors worried --There is a Budget proposal to tax at 30 percent any investment received by closely held companies where the aggregate investment exceeds the fair market value of shares. Put simply, this would mean an angel investor investing in a company where the investment is in excess of the fair value of the shares, will be taxed and his investment will be considered as income for the entrepreneur.

In a report in The Hindu Business Line newspaper on 18-03-2012, Quattro's Raman Roy, a leading angel investor himself, was quoted as saying the proposal will 'kill entrepreneurship'. If we don't fix diesel pricing, it could wreck the economy. We have no roadmap here, too.


(4) Vodafone is a case in point. Change in Tax laws with retrospective effect.. tantamount to back stabbing – Et tu, Brute...

Having lost the case in the Supreme Court, the government is now trying to legislate a retrospective amendment to the laws - like it did in the case of ITC years ago. What message is this going to send to foreign investors - who were extolling the independence of our judiciary with this single judgment?

But I agree with you that one should avoid retrospective amendments," Ahluwalia told Karan Thapar in 'Devil's Advocate' programme on CNN-IBN when asked why should this amendment be effected retrospectively. On the impact of this move on foreign investment flows, he said, "Whenever you have retrospective amendment which affects an individual, he will certainly feel that he has been treated unfairly."


(5) Mr. Finance Minister, you disappointed us and wasted a golden opportunity : In the past, budgets used to be a kind of state-of-the-union message, a strong indication of vision, direction and drive.

Not any more. The budget exercise is gradually getting reduced to an annual accounting statement, and this budget is an indication of that trend.

The budget has got a near unanimous thumbs down from economists and analysts but very few have indicated what the finance minister could have done differently.

There is clear failure to give us a roadmap on how subsidies are going to be cut tells us that the government still is not sure what it will do. It is not good that we don't know how to get there. The value of having an annual budget is to that extent diminished.

Market specific announcements like the reduction of Securities Transaction Tax (STT) by 20 pct on delivery trades were below market expectations as delivery trades form a miniscule portion of the overall volumes.
Even the increase in the income tax exemption slab from 180,000 rupees to 200,000 rupees fell short of expectations. The Rajiv Gandhi equity scheme, though it may have a good intent, may turn out to be another fiasco like the National Pension Scheme.

A retrograde step in this budget has been retrospective amendments to the Income Tax Act which question the stability and continuity of the legal framework especially from the point of the view of a foreign investor.
Overall, there is some attempt towards consolidation, but not enough to mark a shift in the overall fiscal stance. There is now increased uncertainty on policy rate cuts in April as crude oil prices continue to rule higher. Bond yields have hardened — reflecting nervousness in the debt market over the possibility of policy rate cuts next month. Crude oil will also be closely watched as higher prices will hurt fiscal balances further.

The markets have started pricing in a rate cut in April which now seems more difficult than earlier. Thus, Nifty is expected to tread lower in the coming week with levels of 5200 being the important support zone. In case we break those levels, we are staring at 5000/5050.

[vinay28]

I heard a few top FII guys. They didn't seem so unhappy.

[rajmuthusamy]

FIIs are happy about the budget..They always want to realistic budget than over promise and under deliver..FIIs were not happy - when the FM announced 4.6 deficit last year..actual we reached at 5.9%...

FIIs always worry about the political stability and the Government survival to stay in the mkts.. As of now both National parties do not want to contest elections and they will quarrel - but may do some common items in the next two years - to keep the regional parties guessing...

FIIs do not have much choice of investment destination at the Global markets as of now...Developed countries are printing money and keeping the low interest regime for next 12 months - (Elections in their country) - FIIs will increase their investments on India...

FIIs will take the market to new high in the FY.

[givemegold]

FIIs have been pumping so much money, as they got it so cheap -- and also they expected our markets will do much better on the hope that this year's budget will be good at the bare minimum level.

Now, the budget not only disappointed - but also shocked them to the core.

Look at the article at Fist Post that reflects their correct reaction.

Fereshte Sethna, lawyer in the Vodafone case, has blasted the government’s move as “unconstitutional.” He said: “While prospective legislation was a clear route available to the government of India,” it has chosen instead to “pursue enacting of retrospective legislation” that is “harsh, oppressive, excessive, arbitrary and (with) penal consequences, hence rendering it liable to be declared unconstitutional. An era of unwarranted tax uncertainty has potentially been ushered in vis-a-vis foreign investors into India…”.

Firstpost agrees that this is ethically untenable, and will achieve the exact opposite of what the Supreme Court intended – of providing foreign investors a clear set of rules. The rules are being put in place after the event, and the Financial Times notes that it will “further dismay international investors already downhearted by the country’s unpredictable regulation.”

read the full article at: http://www.firstpost.com/business/budget-2012-and-pranab-mukherjees-ethical-deficits-247790.html?utm_source=MC_TOP_WIDGE


There are some more reactions from Net: (Copied and pasted here)

It is very sad -- Our FM ignites the process of transforming our country to become a Banana Republic - The final outcome of this budgetary exercise is ** trust deficit** in two main counts - (First one) There are stronger reasons to believe the revenue estimates are inflated and expenditures including subsidies are forcibly deflated to an unbelievable level. Real experts will treat them lesser worthy than the paper it is printed. (Second One) Changes in tax law with *retrospective effect from1962* due to Vodafone tax case. This is very very damaging change, the effect of which will give a severe blow to the creditability. In simple sentence – Investors will see there is **NO Rule OF law – but rule BY law**. If this change with retrospective effect is not rolled back, investors will punish our markets ruthlessly – lets not underestimate the damage.


Pathetic political scenario ,Mamta’s attitude , proposed amendment in IT act are the main reason for downfall of our market. Look at this: Trivedi was forced to resign because he initiated at least some minimum good things in Railway budget. This government cares only about the *Chair and Power* - nothing else

The goal of deficit target of 5.1% may be achievable provided oil prices go down below $100. Oil falling will also mean the rupee appreciating.


The budget decleared by Dada is neither boosts the economy nor gained public sympathy. Our economy is facing two big problems Viz-Growing fiscal deficit and Inflation. Increase in duties and taxes are not effective measure to release the fiscal deficit. Instead of raising taxes and duties Govt should emphasize to prevent the malpractices and corruption envolve in the collection of duties and taxes. If govt will take any effective measure in the recovery of black money, it will be very helpful in decreasing the fiscal deficit. It is understood, the increase in excise duty, service tax will encourage the inflation. In my view the budget announced by Dada will not able to achieve the goal of FY13.

Increasing service tax 2% from earlier 10 to 12% and increase excise duty will cause to increase inflation again so RBI not going to give any cheer to industry growth near term in form of rate cut. no firm policy decision of FDI in retail, aviation. take infra and power sector depend on bond issues only. education sector also not get benefited as much.
as this govt is functioning paralytic last 2 years that reflects finance minster budget too, no aggressive reforms. nothing cheer to about.!

Take care Take care

[givemegold]

Expect supply around 5410 -5440 area...

[givemegold]

Bears started praying **yama dharmaraja** stotram -- to gain upper hand and success --- ** Yamaaya Dharmaraajaaya mruthyuvecha anthakaayacha.. vaivaswathaaya kaalaaya Namo Namaha** ...

[vinay28]

good one!

[givemegold]

Thanks Vinay28 for your appreciation.

Looks like India's budget fiasco ignited **global capital market correction**... sab jaga mein laal thupata vaali is dancing...

[givemegold]

Companies are delaying their buyback programme as they may be expecting share prices to fall in the coming days with lot of uncertainty over economic growth and worries over widening fiscal deficit, said an analyst.


Most of the companies that have undertaken buyback are currently trading close to their offer price. With expectations of a fall in stock prices, promoters may be waiting to step in when the prices fall sharply, he added.


Thanks -- The Hindu Business Line


Read carefully --- sharp fall

[givemegold]

An Interesting article in Reuters...

it is far from certain that the Samajwadi Party or other coalition allies would support unpopular policy moves that could cost them votes in the general elections due by 2014.

Singh may in the end decide not to risk the survival of a government that is already at its weakest since coming to power eight years ago.

"The crisis will intensify and their ability to cope with it will diminish. The government is being buffeted on all sides and it will have to give way at some point," said political analyst Swapan Dasgupta.

He said that if the government did raise fuel prices it would wait until the parliament session ends in May to avoid a confidence motion that could topple it. However, he said it was not clear that Singh had the nerve for such a step.

"I believe they will just blunder on until 2014, and to hell with the deficit," he said.

Read the full article at: http://in.reuters.com/article/2012/03/19/manmohan-singh-subsidy-oil-trivedi-budge-idINDEE82I0B420120319

[vinay28]

look at the contra possibility. NO party wants an early election so congress may say "to hell with it" and go for bold and decisive moves.

[givemegold]

@Vinay28...

Read this article in First post -- Robin Hood or just Hood? FM has mugged all, rich and poor

http://www.firstpost.com/business/robin-hood-or-just-hood-fm-has-mugged-all-rich-and-poor-249058.html?utm_source=MC_TOP_WIDGE

[ajayhkaul]

great post..... givemegold !

Keep digging up such priceless info .... some people don't listen to the FM it seems ( as per our friend vinst. maybe he will change his mind now ).

[givemegold]

@Ajayhkaul.. tnx

There is one more interesting observation about US markets from Bloomberg.
(Copied and pasted here from the net).....

One interesting observation noted in Bloomberg: that says.........**Daily prices changes in the S&P 500 are decreasing the most in eight decades, shrinking to the smallest since 1995 when investors abandoned stocks just before the biggest rally ever.

The benchmark gauge for U.S. equities has gained or lost an average 0.46 percent a day this year, compared with 1.04 percent in 2011, the biggest reduction since 1934, during the Great Depression, according to data compiled by Bloomberg. Swings are diminishing after valuations fell 40 percent and correlation among shares weakened the most in at least three decades.

At the same time, trading on the New York Stock Exchange has slumped to the lowest rate in 13 years, spurring concern about the biggest first-quarter rally since 1998. Bulls say the decline in trading and daily swings signal fear is dissipating after one of the most volatile years on record. Bears say falling volume is a warning gains will reverse should economic reports and earnings fail to match expectations.

“Even though bullish sentiment is high, people are still fearful. I see it in my business every day, they couldn’t stomach the volatility. This will restore some sense.”...says Tim Hoyle, the director of research at Radnor, Pennsylvania-based Haverford Trust Co., which manages $6 billion.

Global indices waiting for correction -- Serious Investors of Indian Markets are well prepared for a bear hug.... as our budgetory exercise takes out the bull strength and the collateral exuberance. Read this article in First Post -- Robin Hood or just Hood? FM has mugged all, rich and poor... nice one indeed. Another article in Reuters says... Subsidies dilemma: sound economics or political survival....it is far from certain that the Samajwadi Party or other coalition allies would support unpopular policy moves that could cost them votes in the general elections due by 2014. Singh may in the end decide not to risk the survival of a government that is already at its weakest since coming to power eight years ago.

There is trust deficit -- and this fatal.

( During the last few days, i have been copy-pasting some informations / messages that i feel important-essential to the trading community -- I acknowledge many of us already seen/read them. However, I do this only to the benefit of those who somehow missed them; and also keep it recorded here in this forum in a manner so that we can refer to it in the near future if needed )

[givemegold]

BEAR HUG song --- ** katti pudi katti pudi da kannaalaa, kandapadi kattipudi da -- kanda padi katti pudichu un ishtam pola kottam adi da **