SHARETIPSINFO >>Articles Directory >>PRE-BUDGET 2009-2010

“Having an edge will help you make money in stocks.”

WHAT WE EXPECT FROM FORTHCOMING BUDGET: 
Budget likely to keep GFD/GDP ratio at 6%or slightly above 6%.
Expansion of NREGP, Bharat Nirman likely to stimulate the rural economy.
Government to encourage infrastructure investment.
Selected disinvestment to take place in order to check deficit.
Agriculture sector to get boost.
Focus on education and skill development to continue.

GROSS FISCAL DEFICIT TO BE AROUND 6%:
Government is likely to control the fiscal deficit at 6% because of the following reason:
Higher fiscal deficit will pose difficulty in fiscal consolidation in future.
Higher fiscal deficit will scare the foreign investor and could degrade teyhe rating of India.

At the same time government cannot think of reducing the fiscal deficit below 6% because of the following reason:
GFD/GDP below seems to be impossible because of government prior commitment towards the National Rural Employment Guarantee Program (NREGP) and Bharat Nirman Yojana. 
In order to spur the economic growth in the economy, government has to increase its expenditure. So it is difficult to bring down the deficit level from 6%.

SUBSIDIES REFORM:
We are not very optimistic that subsidy reform will go through because of the political constraint. Earlier it was expected that subsidies would be rationalize in the following place:
Capping fertilizer subsidies by capping the amount and fixing subsidy per kg of nutrient.
Deregulating prices of petrol and diesel, while retaining price control on kerosene and LPG.
The increasing crude oil price in the international market has made the deregulation of petrol and diesel price very difficult. One of the major allies of Congress will never allow the party to deregulate the petrol and diesel price.
On the other hand fertilizer also seems to be difficult to be capped because increasing price of crude will increase the input cost of fertilizer companies which they would not be able to pass to the farmers.

INFRASTRUCTURE SECTOR TO GET PREFERENCE: 
Good infrastructure is the only way India could achieve double digit GDP growth rate in future.
The boost in the infrastructure will be the major drivers of the market. Expert recognizes that road projects have come to stand still as they are not attracting sufficient interest from the private sector under the existing scheme.

We expect budget to consider following:
Part guarantee of debt for major infrastructure projects.
Support equity component of infrastructure investment by funding SPVS for the purpose through budgetary and extra budgetary resources.

MONETARY POLICY RAN ITS FULL COURSE:
Infrastructure could be major driver of the market. The easing of monetary policy to give boost to infrastructure seems to be impossible. The scope of interest rate cut to increase the investment demand is not possible.
Possibility of inflation again coming back cannot be ruled out. The higher energy cost and commodity price will again haunt the economy.
So we rule out any possibility of easy money for investment.

DISINVESTMENT TO CONTAIN FISCAL DEFICIT:
In order to tie the fiscal deficit the government does not have any option but resort to disinvestment. We expect disinvestment by sell of securities through IPO and FPO, where government will retain majority stake of 51% in the company.
Our calculation shows listed PSU companies disinvestment could fetch the government around $89 billion. There are several jewels in the crown that are not listed like Air India, BSNL, and Coal India. Any disinvestment of minority stake in these unlisted behemoths could fetch around another $60 to $70 billion.
So total disinvestment proceed could be around $150 billion. We don`t expect all the disinvestment to take place in single year but some will go in this fiscal. We expect government could easily meet its disinvestment target as there is expected to be no hurdle through this route.

DISINVESTMENT PROCCED THROUGH PUBLIC SELL OF SECURITIES

	COMPANY NAME		GOVERNMENT STAKE	VALUE OF GOVERNMENT STAKE IN EXCESS OF 51%(USDm)
1	ALLAHABAD BANK		55.20%	34
2	ANDHARA BANK		51.60%	5
3	BEML		54%	20
4	BHARAT ELECTRONICS		75.86%	532
5	BHARAT HEAVY ELECTRICAL		67.73%	3640
6	BANK OF BARODA		53.80%	95
7	BANK OF INDIA		64.50%	482
8	BANK OF MAHARASHTRA		76.77%	87
9	BHARAT PETROLEUM		54.93%	134
10	CANARA BANK		73.17%	548
11	CENTRAL BANK		80.21%	182
12	CONATINER CORP OF INDIA		63.09%	313
13	CORPORATION BANK		57.17%	57
14	DENA BANK		51.19%	1
15	DREDGING CORP		78.56%	79
16	ENGINEERING INDIA		90.40%	357
17	GAIL		57.34%	484
18	GMDC		74.00%	136
19	GSPC		49.20%	-12
20	HINDUSTAN COPPER		99.59%	2121
21	HINDUSTAN PETROLEUM		51.10%	3
22	IDBI		52.67%	24
23	INDIAN BANK		80.00%	347
24	INDIAN OVERSEAS BANK		61.23%	103
25	INDIAN OIL		80.35%	4265
26	JAMMU&KASHMIR BANK		53.17%	11
27	MMTC		99.33%	14141
28	MTNL		56.25%	71
29	NALCO		87.15%	1720
30	NTPC		89.50%	13834
31	NEYVELI LIGNITE		93.56%	2069
32	NMDC		98.38%	16660
33	ORIENTAL BANK OF COMMERCE		51.09%	1
34	ONGC		74.14%	11754
35	PUNJAB NATIOANL BANK		57.80%	299
36	POWER FINANCE CORP		89.78%	1842
37	POWER GRID CORP OF INDIA		86.30%	3494
38	RCF		92.50%	340
39	RURAL ELECTRIFICATION		81.82%	789
40	SAIL		85.82%	4964
41	SBI		59.41%	2051
42	SCI		80.12%	344
43	SYNDICATE BANK		66.47%	135
44	STC		91.02%	152
45	UNION BANK OF INDIA		55.43%	93
46	VIJAYA BANK		53.87%	11

 

GOVERNMENT TO BOOST AGRICULTURE SECTOR:
This time government is totally determined to bring the Indian agriculture from hibernation. We expect agriculture and allied sector to get major boost in the budget. Government keenness towards the sector could be gauged from the fact that for the first time FM invited farmers for pre-budget meet to see their need. Otherwise in earlier years it was the officers who would give suggestion to the FM about the needs of farmer.

Farmers Demand:
Increase in subsidy to farming sector
Implementation of Swaminathan commission report
Waiver of agriculture loans and payment of subsidy directly to farmers.

FOCUS ON EDUCATION AND SKILL DEVELOPMENT:
We expect government to focus on education and skill development. As this is the only area which will help India competes in the global market. Today is the era intellectual capital. We at threshold of economic superpower can never ignore the importance of education.
We expect the government to continue its focus on education and skill development that have been the highlights of the previous budget. We have following expectation from the government regarding the issue:
Allocation for National Skill Development Corporation to increase.
Increasing R&D expenditure to at least 1% of the GDP.
The weighted deduction of 150% of the expenses incurred on scientific research should be extended to all the sectors.

PRE- BUDGET MARKET MOVEMENT:
At present market is trading at 21X to present earning and 17X to the 2010E earning. The valuation seems to be overstretched. If we look at the Asian peers the India market looks overvalued.
The run up in the market post election due to excitement and expectation has brought the market into overvalued territory. Too much of euphoria and expectation has been build in the price.
We are expecting too much from the government. Government has their limitation. So when there will be any short fall in the fulfillment of the expectation market will move into downward spiral.
As if now before budget we expect market to show range bound movement. We expect market to trade in the range of 4160 and 4650.
If we decipher the character of participant at present, it is bear by night and bull by afternoon.

POST-BUDGET MARKET MOVEMENT:
Post budget we expect market to come down to the rational level. We feel there could be correction of 20% post budget. As there could be no trigger post budget to feed the speculator.
The big bang disinvestment if got started after budget will suck liquidity from the market, which will lead to curtailment of funds available for the secondary market.

SECTOR TO BENEFIT FROM THE BUDGET:
We expect following sector to benefit from the budget:
Agriculture and allied activity
Education sector
Farm equipments
PSU

WHAT TO AVOID:
We feel investor should take extra caution while taking position in Index heavy weight at this juncture. Cash is always a good alternative because market always throws good opportunities. If one has cash he or she can avail the opportunity thrown.

CONCLUSION:
We expect post budget stock specific stories to rule. Market may not give return but good story on certain stock will add glitter to ones portfolio. The flow of news regarding certain company `s disinvestment will pull the interest of market participant rather than the Sensex or Nifty stock.

 

 

To Know About our Packages Click here

 

Click here for Indian stock market tips