I-Sec Tells Investors To Exit In Case Of Pre-Budget Rally

ICICI Securities and Finance Company (I-Sec) on Monday advised investors to sell Indian shares if they rallied in the run-up to the countrys forthcoming federal budget.

If the market runs up before the Budget, we advise investors to use the opportunity to exit, I-Sec said in a pre-budget report. I-Sec is the Indian affiliate of US investment bank J P Morgan. Indias 1997/98 federal Budget is due on February 28.

I-Sec said a higher fiscal deficit and the absence of substantial measures to boost corporate growth were likely to keep equity markets depressed.

It said a further lowering of import tariffs in the Budget could hit the performance of Indian companies. Corporate profit growth is likely to remain lower in 1997/98 (April-March) too, on account of further hikes in oil, coal and power costs, combined with an overcapacity situation in most commodities, I-Sec said. I-Sec said the fiscal deficit in 1996/97 was likely to exceed its target of 5 per cent of gross domestic product, as both government revenues and expenditure had taken a hit.

 

This year, the finances have been hit by a double whammy on both the fronts, lower receipts and higher expenditure, I-Sec said.

It said tax collections - both direct and indirect - had been hit by a slowdown in corporate profitability, lower import growth and lower production growth.

The failure of the government to sell part of its stake in public sector units had compounded the problem.

We expect the aggregate receipts (other than market borrowings) to be lower by at least 85 billion rupees than the Budget estimates, I-Sec said.

With some cuts in other expenditure, the total expenditure would be higher by at least 20 billion rupees than the budgeted amount, it added.

I-Sec said lack of adequate infrastructure remained the primary cause for concern. Shortage of power, lack of proper roads and insufficient availability of railway freight facilities, and poor facilities in the ports are all likely to hamper industrial growth for the next few years, the report said.