The markets witnessed the worst post-Budget decline of the past 18 years. Practically every analyst blamed the Budget and predicted the worst days ahead for the markets. The main argument put forth was the missing reforms agenda. I wondered why the markets failed to read so much that is positive in the Budget. “Reforms” is a dynamic concept and needs to be understood in context with the ground realities facing an economy at a particular time and not necessarily what the markets expect it to be.
This Budget has indicated a complete shift in the mindset by consciously focusing on rural India to prop the consumption demand and future private investment. This was precisely what was required since I have always advocated that policies should focus on the economy and not on the markets. If the economy is taken care of, the market will take care of itself.
There has been no increase in taxes – corporate or individual. Whereas removal of Fringe Benefit Tax and Commodity Transaction Tax are other big positives, the Budget has also talked about expanding the services tax base while reducing the rates at which they are taxed. The proposal to decontrol petroleum product prices, rationalization of fertilizer subsidy, introduction of goods and services tax, and increased focus on infrastructure by improving financing, assigning greater outlays, and removing policy, regulatory and institutional bottlenecks are sufficient indicators that the government has not lost sight of reforms.
The Budget may not have announced big bang reforms in line with the expectations of the market, which was looking for a road map for PSU disinvestments, liberalization of the foreign investment regime and opening up of the financial sector. But do we really need Budgets to make such announcements? Moreover, the track record of reforms in India suggests that we proceed with them in a slow and steady manner against the backdrop of our economic realities.
The only thing that markets need to worry about is the huge fiscal deficit projected at 6.8 per cent of GDP with the far more alarming increase in the revenue deficit, which is budgeted to go up 412 per cent in 2009-10 as compared to 2008-09. This way, it will constitute 70 per cent of fiscal deficit, which is the highest since 1991 and bound to have serious repercussions in the form of increasing interest rates and rising inflationary pressures. The situation may further worsen if the monsoons remain deficient as they have till date.
So far as the outlook of the markets is concerned, the valuations suggest that there may not be a big upside in the short- to medium-term. However, huge liquidity in the system may guard against any sharp downside also. Investors should therefore concentrate on value buys with a long-term perspective and look for the upcoming stories as they unfold.
The only thing that markets need to worry about is the huge fiscal deficit projected at 6.8 per cent of GDP with the far more alarming increase in the revenue deficit, which is budgeted to go up 412 per cent in 2009-10
Blue Bird India
(CMP Rs 23)
The education sector is likely to be the most happening sector due to increased focus by the present government. The sector has very few listed companies including NIIT, Educomp, Everonn Systems, Aptech, Jetking, IEC Education, and so on. Most of these stocks have witnessed a substantial run up in their prices though a lot of steam is still left. Those who think they have missed the bus can look for stocks that are likely to benefit in a big way due to the increased thrust of the government in this sector. These stocks, which are yet to attract the attention of investors, include Navneet Publications, Macmillan India, Todays Writing Products, Camlin, Linc Pen & Plastics, Blue Bird (India) and the like.
Blue Bird (India) engages in the manufacture of student books/exercise books, printing and publication of educational books, and commercial printing. Besides ensuring its leader status in the exercise/notebooks business – a Rs 1000-crore plus market growing at over 20 per cent, the company has embarked on developing its exports business as well. At present, the company has over 9,000 dealers and 800 wholesalers. It has steadily increased its revenue share from high margin businesses such as publication as compared to printing.
The company clocked a sales turnover of Rs 502 crore for the year ending March 2009 as compared to Rs 458 crore for the previous year. The operating profits increased to Rs 94 crore as compared to Rs 72 crore for the same period though net profits declined from Rs 22 crore to Rs 15 crore due to higher interest costs. With an EPS of Rs 4.33, the stock is available at PE of just 5.5 as against the industry PE of 15.5. The PB is only 0.4 and dividend yield is 5 per cent. With these fundamentals, there is hardly any downside.
The author is retired as Professor from the University of Delhi in 2024. He is an alumnus of IIM Indore and holds a PhD from the Delhi School of Economics. An investor activist and former member of various SEBI committees. He taught Capital Markets and Investment Banking at leading business schools of India.
