First of all, how is the new budget, as proposed by the newly elected Indian government?
To me, the budget looks good, if not excellent. It has an inclusive approach to the future growth of the Indian economy, keeping in mind the current Great Recession. The government has rightly decided to expand the depth and breadth of future expansion of the economy by:
1) Enhancing the disposable income of the masses by increasing the tax-exemption slabs. This will leave the people, with relatively a little more money to spend, keeping in mind the current inflation.
2) Trying to bring the poor of the country to the mainstream of consumer-base, especially farmers, as they contribute 28 percent to the Indian GDP. That’s the reason for extending support to this segment in this new budget.
3) Revoking and reforming some specific taxes, such as the Fringe Benefits Tax, the Commodities Transaction tax, the Minimum Alternative tax. Doing so ensures that the entities concerned are not taxed twice, and the entities are taxed righteously, without giving them a big window to evade taxes (remember Reliance until a couple of years back).
4) Increasing the government spending on the National Rural Employment Guarantee Act, the Food Security Act, and the National Rural Health Mission. All these are intended to take care of the neglected, down-trodden, poor masses, who all can contribute to the future growth of the economy, which is currently at USD 1.3 trillion.
5) Not selling much stake in the coveted Public Sector Units off to cover a large portion of the fiscal deficit immediately. I think the government has taken the right decision for NOT giving a knee-jerk-reaction type of solution to reduce the proposed fiscal deficit of 6.8 percent of the GDP. Instead, the budget is looking forward to borrowing USD 93 billion to fund the budget spending on the roads, power, and aid to the poor. The dilapidated state of infrastructure robs the country of almost 2 percent of growth to the real GDP!
In other words, the budget looks like a good one, with long-term-growth prospects, as it takes an inclusive approach that takes care of all strata concerned, at least to some extent, for sure.
Then, why did the stock markets over-reacted post budget? Well, the answers lie in the recent past of the stock markets!
Having been deep fried recently on the Indian bourses because of the of-late global massacre on the stock exchanges worldwide, the investors were expecting a quick, irrational, selfish growth, which is against the basics of the market fundamentals and Economics, to offset their recent past losses. The budget doesn’t have anything to fulfill that kind of right-off-the-roof growth. So, simply out of despair and to beat the FIIs in going for a selling spree, the domestic institutional investors over-reacted by mass selling of equities. The result of which has been that the bourses shed more than 1000 points, within a couple of days.
A piece of honest advice to retail investors is that look for economic indicators, for financial statements of the companies that you are interested to invest in, for buying at the dips, and for staying invested for as long as possible. You are guaranteed to make good profits.
And, finally, a piece of advice to speculators is that visit the Church more often! You never know when you have no other choice, but to lie in the backyard of the Church peacefully! After all, everyday is not a Sunday.
