Budget 2014:
Budget 2014 (Build Unique, Developing & Growing Economy, yet Tax friendly) has been a Nation Development Approach by the NDA, with glaring signs of being a Business Jagran Program, instituted by an eight – week old BJP government. The necessity du jour is to boost investor sentiment and confidence, in the backdrop of a sluggish economy that bore the brunt of policy paralysis, uncertainty, logjams and a major crisis of confidence for over five years. The crippling financial crises in the United States and the Eurozone didn’t help the Indian economy’s cause either.
India’s Finance Minister, Arun Jaitley, emphasized, as far as the budget was concerned, that it was a roadmap for the next few years and not an economic obstacle that would tax industry and impede growth. Its aim is to spur demand, rein in the current account deficit and spur consumer and investor confidence.
Budget 2014 ushered in many cheers by augmenting the FDI limits in sectors such as insurance and defence, removing CRR and SLR requirements in case of infrastructure bond issues by banks and by disinvestment plans for public sector banks and PSUs. Excise concessions to the manufacturing sector have been extended till the next budget and a tax pass through for REITs (real estate investment trusts) will help the realty and construction sectors raise funds at a low cost. Furthermore, retrospective amendments of tax laws will be done away with, which could benefit entangled companies such as Vodafone, Shell and Nokia, while tax exemption limits for individuals have been raised. All these budgetary measures would give the economy a much - needed face-lift and improve its perception in the eyes of the world.
The Sheep Of Dalal Street:
While Budget 2014 was largely applauded by the captains of industry, India’s bourses have been rallying for the past few months, powered by the so – called ‘Modi Trade’. While the markets have risen by over 20% and FIIs have pumped in several billions of dollars, is the euphoric rally sustainable or will the markets eventually crumble like a house of cards? Well, at this juncture, the Sensex is trading at a forward price multiple of 18 times, making it fairly valued but not expensive. Moreover, many companies are sustaining their margins, while growing their toplines and bottomlines at the same time. Above all, the expectations that Modi will transform India, à la Gujarat, and spearhead economic growth has created widespread optimism that has manifested itself into a market rally of considerable proportions.
However, a point to consider is that India’s markets are still FII – driven and retail participation is insignificant. Retail investors, even today, are sitting on the sidelines, playing a prudent game of wait – and – watch. Retail investors, like a flock of mindless sheep, normally enter the markets late, often at sky – high valuations, driven by greed, avarice, materialism and euphoria. Needless to say, they end up burning their fingers, when the markets tank.
The Great Indian Bull Run, many say, will be one of colossal proportions and retail participation will fuel it. There will come a time when virtually every stock out there will have a one – way ride to the top. There will come a time when retail investors will join the party and the markets will rally, full steam ahead. And considering that business confidence and investor sentiment in India are changing for the better, the time for a major bull run may soon be on the horizon.
Get ready Dalal Street. The sheep are coming.
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