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| Looking for some clarity |
| Shobhana Subramanian / Mumbai Jul 07, 2009, 04:13 IST |
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The Street would have liked a clearer picture of govt plans to spur growth & attract investments.
The Street’s reaction to the budget proposals for 2009-10 may seem a tad overdone. It’s also possible that expectations were somewhat misplaced. However, while it is true that the budget need not necessarily articulate all of the government’s proposed policies, the finance minister could have taken cognisance of some of the market’s expectations.
After all, the economy is still in a downturn and a road map of how the government proposed to go about its reform programme, wasn’t really asking for too much. Or some idea of how it planned to mop up money to keep the fiscal deficit in check. In fact, even a few hints on when some announcements could be expected would have done the trick.There was some good news about spends on infrastructure and rural schemes but that was obviously not enough.
The finance minister barely mentioned disinvestment and Rs 1,100 crore is all that he’s pencilling in from sales of shares in government firms this year. Also, since global growth remains weak, the market is looking for some assurance from the government that it will speed up reforms. So the government needs to start talking about foreign direct investment and other reform measures in the next few months.
The Street is concerned that large government borrowings will crowd out private sector borrowings, which in turn could push up interest rates. There needs to be some reassurance that there will be sufficient liquidity in the system so as not to push up interest rates.The markets have rallied over 70 per cent from their March lows and India remains the best performing emerging market this year so some amount of profit taking was inevitable.
After the correction to 14,043, the Sensex trades at just around 14 times estimated 2010-11 earnings which is not too expensive. FII flows have been fairly strong and should continue to be so. However,a weak monsoon could lead to some earnings downgrades and upset the mood.
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