Not many investment ideas

The markets doubts about the governments ability could lead to a continued trend of bearishness

There are not too many obvious investment ideas visible from the broad contours of the Budget. If one factors in higher corporate tax surcharges, most listed companies will be struggling to achieve serious earnings growth in 2013-14, net of taxes. Instead of long-term investments at the current prices, short-term short positions appear to be more likely gainers at the moment.

In another time, with another government that demonstrated the will to translate intentions into action, this Budget might have been well-received. As it is, three years of inaction made everyone doubtful about the governments ability to deliver on its stated intentions.

Potentially lucrative short positions could arise across the real estate sector, and in PSU disinvestments. The real estate industry was desperately hoping for either infrastructure status, which would have made borrowing easier, or a big tax break for the housing finance industry, which could stimulate demand.

Neither materialised. Housing does receive a tax break but its not one likely to result in a big new stimulus. New housing loans of up to Rs 25 lakh, on properties worth no more than Rs 50 lakh, will get a higher write off. This would be a very small segment. A sell off in real estate shares started with the Budget and the trend could well continue.

On the PSU front, disinvestment continues as it must. The last few months have seen disinvestment moving, signalling that the government has serious intentions in this regard, even if it has to arm-twist its own institutions such as LIC to subscribe to the offers.

The knowledge of impending equity dilutions should keep prices of PSUs depressed in a year when growth isnt likely to see a big jump anyway. As and when specific PSUs are on the anvil, there would be short-term opportunities for nimble investors to either short, or to buy at low valuations off the secondary market, or possibly both.

On the positive side, Plan allocations have seen relatively generous increases and there has also been some re-focus on infrastructure. The problems here again lie in delivery and implementation. For example, an independent authority for roads and the target of awarding 3000 km worth of road contracts by September 2013 sounds good. But land acquisition remains a major stumbling block as does tardy clearances in this regard. Will an independent authority make much difference?

Similarly, the power sector gets a few breaks. But its up to the states to turn around ailing units and its unclear whether a real effort will be made by laggard states to improve their finances. Also, can the messed-up fuel supply situation for coal and natural gas be sorted out? The new PPP concept with Coal India partnering private sector players to improve coal production is hazy. So is the concept of Coal India going overseas with a CIL Videsh subsidiary, as ONGC Videsh has done.

A shale gas exploration policy is over-due. So is a saner gas-pricing formula and moving from profit-sharing to revenue-sharing in oil and gas exploration is likely to be an improvement.

In some instances, the projections do seem wildly optimistic, In telecom for example, the Budget projects potential earnings of Rs 40,850 crore from spectrum auctions and license fees. In 2012-13, it received Rs 19,400 crore against a projection of Rs 58,000 crore on this account. Also, the hike in duty on mobile phones priced above Rs 2,000 will feed grey market demand for handsets, while retarding the growth of data use at the same time. In turn, that makes spectrum auctions less likely to attract high levels of participation.

The market reaction has pushed prices down by about five-six per cent through February. Given the markets palpable doubts about the governments ability to set achievable targets and to reach them, we could see a continued trend of bearishness.