MARKETS and Modi both witnessed correction in view of AAP’s landslide victory in Delhi. The markets, though, soon recovered, expecting the Delhi result to put further pressure on the Central government to speed up the reform process. Expectations of a market-friendly Budget was yet another reason. However, the short-term outlook may remain tense due to the lacklustre Q3 performance of the corporate sector and global factors, but the medium and long-term views remains decisively bullish.
The Economic Survey clearly points to this fact when it observes that “India has reached a seat spot-rare in the history of nations-in which it could finally be launched on double digit medium term growth trajectory”. It forecasts a growth rate of up to 8.5 per cent for FY 15-16, making India one of the fastest growing major economies, surpassing even China. Low inflation, a manageable fiscal deficit, softer interest rates and a likely push on reforms will catapult the economy to double-digit growth.
The government’s commitment to aim for a fiscal deficit target of 3 per cent by FY18 is a big positive for the market as it will have a direct bearing on the government’s borrowing programme and will not result in crowding out the private sector. The impact on interest rates will be very positive and it will also help in kick-starting the investment process, much needed for achieving a higher growth rate. The unique thing about the Budget is that it has shunned glamour and big bang announcements and takes a very fresh and sensible approach to guiding the economy in the desired direction, the effect of which will be visible only after some time.
The thrust on curbing generation of black money will by itself boost growth, other things remaining the same. The Budget has made a sincere effort to achieve growth with social justice by not only significantly increasing allocations but striking a balance between the two. Many key changes have been announced to improve the ease of doing business, encourage entrepreneurship, expand tax compliance, and improve the delivery of social security benefits to the poor by reducing leakages, but the real impact of these changes will be felt only after a year or two. But the fact is that no single Budget can make or break the economy.
India Inc. is yet to come out of the woods and it may take another couple of quarters to see any green shoots. The net profit of BSE Sensex companies even at the operating profit level fell by 6 per cent year-on-year in this quarter. The valuations by that standard look stretched. Credit growth has declined and geopolitical risks have not yet vanished. The probable impact of Greece and the US dollar may not be discernible and India is mainly going to be impacted by India-centric factors. Investors are, therefore, advised to be cautious as there may be steep correction in the near future. The same period may, however, be used to accumulate quality stocks.
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