Budget 2009

http://indiabudget.nic.in/ub2009-10/bh/bh1.pdf
"The best plans of men are bound to fail at the last moment"The Indian Budget 2009 was no exception.As Mr Mukherjee read the budget the stock markets fell like a pack of cards.For record the BSE sensex tumbled by 900 points and NIFTY pulled down by 250 points.Meanwhile the analysts and business people tried to reassure the public that the budget was good and had the ingredients to take the economy back on track.However if markets are taken as a leading indicator of future performance of the eco0nomy..clearly Mr Mukherjee has been given a thumbs down ..

So what was all the hysteria about the budget and is it all that bad?Lets analyse point by point.First lets review the prologue i.e the market and business expectations out of the budget.

As i had pointed out in one of my earlier posts the UPA winning an absolute majority was a historic moment for India..for it Indicated that we could put the reforms back on track..with no Marxists or Jaylalitas of the day playing the spoilsport.As a result with Manmohan leading the government ..the business people and markets had started expecting another revolutionary budget like that of 1990's when Indian economy took its first step towards free market capitalism.This time around markets expected a visionary budget which would put India in another orbit all together.SOme key expectatios were:

• Govt to launch schemes to make India a technological capital of world
• Govt to dilute its stake in PSU Banks
  
• Removing FDI Cap in many sectors
• Direct Stimulus packages for industry in form of massive tax and excise waivers
• Refinancing of PSU Banks to improve the liquidity situation in the markets
• PPP and direct entry of private players in sectors like railways,defence,nuclear power etc
• Increased focus on education both primary and higher
• Steps to increase agricultural productivity and boost rural demand

If you red the budget highlights (included in the link at beginning of the post) we would see that the budget failed in most of the above market expectations and hence the thumbs down by the markets.

However we go for outright criticism of the budget let us see whta Mr Mukherjee has tried to do.The world economy clearly is still in turmoir..things have started improving but not improved yet.The business enviornment needs a kind of stimulus top put it back on track.now there are mainly two ways of doing this:

• Refinance your banks like US to decrease interest rates and flood the markets with money which would increase the incentive for producers and hence lead to job creations and economic reviveal
• Direct spending by government in key infrastructure and other areas to stimulate direct growth

So from the above two which one is better..The answer is ..both..depending on your econmic strengtha nd fiscal performance a combination of both could do wonders for any country.However bare in mind..you need to have the numbers on your side to win the game.If you read the budget draft ..clearly Mr Mukherjee has gone for the second option.He has tried to kill two birds with one bow..solve the socio economic problems of India by increased expenditure on schemes like gramin sadak yojna and bharat nirman etc and at the same time create enough business fro India Inc.

Therfore on the surface the budget looks to be on track..then why such a thumbs down by india Inc.Well to understand thsi lets take a closer look on the budget highlights:

• Mr Mukherjee has clearly forgotten the urgent need for increased expenditure that India needs on infra needs.The onloy blue lining is refinancing of current PPP projects to ensure they are not abandoned.There has not been any major infra announcements like the golden quadrilateral by NDA govt etc
• The budget is focussed more on socio economic upliftment.While this is good but the increased spending on schemes NREGA is not favourable as these schemes are highly inefficient with large leakages.In many cases we have workers not being paid for months together.thus aim of increased spending on socio economic schemes as an aid to economic upliftment stand vanquished
• There is no provision of govt exiting from PSU banks.As a result the liquiduty situation may to continue to remain tight.However the point is arguable and hence we may not take this as a strong red mark in budget
• The budget estimates a fiscal deflicit of 6.85 of GDP as estiamted in budget plan 2009 is too high for any standard.This is mainly due to extravagant spending by govt. on socio economic schemes.To finance these schemes Mr Mukherjee is opting for govt borrwing.This may lead to tightening liquiduty situation in the market with banks investing major chunk of the money in Govt bonds rather tahn lending it to publisc.This is clearly a recipie for disaster which would reduce consumer spending and investments in public sector.As Prem shankar Jha points out in ET "this is a clear recipie for stagflation"

The numbers are clearly no9t in Mr Mukherjee's favour .With a fiscal deflicit of 6.8% and a stranded economy.India might not be attraction of FDI's anymorly.No more FII's sold stocks worth more than 1 lac crore on budget day.The only chance where this budgedt might be able to achieve its objectives is when FDI's take a positive look on India and govt resorts to borrowing from international markets reather than borrowing from domestic makets.Leaving enough liquiduty for domestic industry.

However borrowing from foreign lands is a hazard as we would have to pay interests in precious foreign currency..leaving little room for technological,industrial and natural resource aquisition abroad.however if we are able to put industry back on track we may be able to get additional loans to achieve the above stated facts.

So the budget may have disappointed many of us but you never know..markets always play the dice..if Mr Mukherjee is able to pull this out by foreign borrowing and efficient implementation of socio economic and infra schemse..this might be the revolutionary budget we were looking for

Happy Blogging :)

Trading The Nifty

As I promised this blog is just not going to be about pilitics and economics alone,infact I am gong to write here whatever comes to my mind.(I am sorry if any reader is disappointed by my not sticking to a particular topic ,but then this is the beauty of "The Other Way")

Anyways lets get to the point..Dows breaking again after yesterdays of about 270 points and is running back to 1997 lows as I write this blog.Obama has clearly appointed the markets with not making any concrete announcements.Indecision is worse than decison and markets who better to teach you that the markets.To me if Dow doesnt manage to pull back today,it is nothing more than the tape shouting to short the NIFTY.Indian markets have stood firm till now but when everythings falling it would be difficult for markets to hold the head high.

The evaluations look fantastic at this time,with many companies being undervalued..this might be the right time to enter the markets if you have a longer term prespective atleast 2 years ,but then the job of a speculator is different than that of an investor,who is concerned mainly with ensuring a constant return on his monies while a speculator want to earn quicker profit by following the trends of the market.So far this is concerned ,NIFTY is looking very weak if it breaks the 2600 level.Therfore if NIFTy breaks 2600 we might see the last downside of this bear run...the last exaggeration which is so characterstics of bulls and bear cycles.Yes markets exaggerate,but for a speculator no price is too high to buy and no low too sell
At the same time if NIFTY returns back from these levels and breaks 2800 tomm. I would take it as a confirmation of bottoming out of the market.At the macro economic level,the interest rates seem to be softening and a good agricultural output might be able to stimulate demand but for rest nothing is too positive.Bewre the bottoming out of market does not indicate that the bull run has started.For there would be large consolidation phase when markets would remain range bound and only when macro ecomo,ic fundamentals improve and their is "money" to be diverted in the markets that a bull phase would actually start.Meanwhile either play in range or stay outside..Happy trading

Shoba De and Economics

This Sunday morning as I picked up my copy of TOI ..after a cursory glance at the front and business pages(like hinid news channels their are only select newspapers which produce journalism worth mentioning today)and then turned to my faviourite page..the editorial.For all its flaws I admired TOI for its edits with some of best and most respected Indian personalities writing in it.And guess what TOI disappointed me even on this front..for what I saw on the page was nothing more than a hilarious joke on the intelligence of TOI readers...Shoba De,the self proclaimed socialite and author,whose works include nothing more than sex and relationships had decided to give "gyan" to Indian junta on interim budget and current economic crisis.
After muttering some thoughts ,I proceeded to read the article..and guess what Ms De didnt disappoint me.What followed was a foolish writeup on interim budget with sexist statements and double meanings to entertain the reader.
Consider "and Mr Mukherjee failed to pull it up .......and tried to show he can do it again.."
I think if TOI needed someone to comment on interim budget ,it shouldnt have been facing such a crisis call that it had to resort to Ms De.
Anyways I am not against her style of writing but the opinions,the are naive and foolish.She talks about money not doled out in budget,how can it be ,in a democratic setup it would be foolish to tie the new government with policies of old.For it would be difficult and expensive for any new government to take away the tax sops or do a U turn in public policy and if it doesnt that might just be against a public mandate..and to top it up all foreign investors fear any U turns in policy..such actions just push down the markets (remember how markets reacted when UPA -Left combine were to assume power in 2004..fearing a U turns in reforms initiated by NDA regime).Infact Ms De I think that UPA had done a brilliant job by fine balancing the fiscal need s of the country and at the same time mantaining the status quo and respecting our democratic iderals
So next time TOI needs a budgetry write up..it might invite Mr Bachan or Mr Rushdie..after all TOI readers are naive and foolish ready to be led up ...atleast this is how TOI feels

The Farce called MNC's

So the Dow crashed again ,I always got this feel that we are in a midist of a bear rally and atleast till June when banks start softening lending rates and increase their risk appetite the bears will hold the upper hand.Anyways in all this chaos one big question that all of us are wonderisng is :Will this crisis result in the inevitable change.The principle of yin and yang says whatever goes up must come down.So will US finally be displaced by China or India or Russia as a world leader
In my view time has come for the change.As they say no trader can stop the market from going where its headed.Similarly US cant stop the natural process for change.The first indicator of change ,I feel is going to the inevitable fall of the greenback.Just why USD remains an international curency is beyond reckoning.US stopped being a manufacturer long ago,and it can be widely argued if its the leading service provider in the world.Most of the services provided by US companies are offshored to India and US.Infact without making any significant contribution to world production US is like the proverbial king whom the subjects pay homage for protection.That the USD remains an international currency is because of mainly two reasons:
The reluctance of oil producing counteries to stick to USD for oil trading
The psychological factors:many counteries fear Iraq type invasion if they switch to Euro or JPY
However recent developments make me believe that both above factors will not support USD .For one the fall in oil prices and increased need of Arab world for articles from around the world will lead to increased pressure for change to some currency whose mother country produce worthwhile.Secondly America is still reeling under the after effects of Bush's Iraq adventure and is in no position for launching another war.So fundamentally there is little to support USD in world markets.Insted of supporting their counteries by producing and gifting goods to US for free ,counteries around the world could do better by increasing trade among themselves,failing which their would be no end to current crisis,
Even technically USD is looking weak,it seems to have lost steam and at end its fall look inevitable....Perhaps i shd call my broker and short USD