Markets to slither on the last leg down
Over the last weekend we read 47 budget analyses report, besides
the one written by InvesTrekk itself. An overwhelming consensus appears to
believe that this budget is inadequate; uninspiring; lacks innovation; and sets
too ambitious fiscal target, especially tax collection, deficit and subsidies.
We may outline the likely economic scenario for FY14 as
follows:
(a)
We may not witness any substantial acceleration
in investments during FY14. The fiscal constraints shall continue to constrict
public investment, as evident from unimpressive provision for plan capital
expenditure. Besides, traditionally no major private projects are initiated in
a pre-election year, as the industrialist wait for the new regime to take place
and announce their policies. The only area where investment can accelerate is
the faster execution of work-in progress.
We do not agree with the opinions that extension of 80IA and
introduction of investment allowance could be immediate motivating factors for
investment in power and manufacturing sector. Rs100cr plus plant and machinery
investment decision is different from buying in end of season 2day sale at a
popular retail store.
(b)
With no credible plan to check consumer
inflation, deteriorating job outlook and lower subsidies, the resilience of
consumption should also start withering.
(c)
The fiscal tightness, higher consumer
inflation, slower savings growth and lower industrial credit demand should
continue to impact the money growth. The liquidity conditions should therefore
continue to remain tight. The recent hike in deposit rates by banks is a clear
indication towards this trend. Even if RBI cuts the policy rates by 25-50bps in
next 3months, the short term rates may not react sharply.
(d)
The volatility in Chinese data, persistently
poor European economic data and recent US budget cuts shall add to the global
economic woes. The external demand situation may therefore not improve
dramatically in next couple of quarters. The current account and INR will
therefore continue to remain under pressure.
(e)
Under the circumstances the growth shall
continue to remain below trend. Though the massive election spending in next
12months may add few basis points to growth, overall it may still be at the
lower band of the projected 6-6.5%.
(f)
We may soon see a fresh round of earnings
downgrades, especially in banking and industrial sectors.
In our view, the market has definitely completed its up move
that started last year. The down move has begun and shall strengthen in coming
months as the markets corrects some oversold conditions and short sellers gain
some confidence.
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