Within couple of hours Mr. Pranab Mukherjee is about to unveil interim budget for the year 2009 and he may show India's biggest budget deficit since last 18 years. The bloomberg street expectations show that the shortfall may widen to 6.5% of GDP as against the targeted 2.5%. The government says that the spending to revive the economy (or to win the upcoming elections) is more important than the budget deficit and this may prompt the credit rating agencies to re asses their credit ratings assigned to India.
The biggest problem is that the street is expecting a little too much from the government as if it has some Pandora's box which can release unrealistic amount of money. This expectation is the only reason that throughout the last week Indian markets have outperformed the global and I strongly believe that when the real picture is showcased it is likely to be below expectations and will intimate fresh selling in the equity markets.
Seeing the railway budget on Friday which was below the street expectations, I believe the common budget will also see the same fate and the government can not provide too much benefits in the fiscal side and increase its deficits.
Moreover if at all there will be any benefits for any sectors it will be for the export intensive sectors (textile, jewellery) because they are loosing millions of jobs every month and subsequently millions of vote banks for the next elections.
Thus the best strategy would be to cover the longs, stop expecting and wait for some time to see Mr. Mukherjee live on CNBC/DD and see whether economics dominates or greed for votes supercedes.
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well i personally feel that this is not a budget but voters' account.Government has some 2 lakh crore of borrowing.The good part is that much of it is not external borrowing.But still with the borrowing increased almost to 75% since the proposed numbers from the last budget i expect that this will only increase mainly through different bonds(e.g oil bonds,infrastructure bonds etc) .But increasing borrowings thru bonds may also have adverse impacts on inflation or interest rates which gov mite not want at this point in time.So my overall feel is the gov wud play safe and play its so called vote bank politics card thru this budget.!!!!
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ReplyDeletebang on target, yesterday the markets behaved exactly in the same manner as stated. But i think budget was just a one day affair and markets will again start to move in the range it has been moving for the past few months.
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