Its Conundrum- Take the benfit

Markets – it’s a conundrum

I was thinking about writing something about markets, but there are so many thoughts, so many things. I just had an opportunity to meet Mr Ramdeo agrawal at Motilal event, obviously for  10 odd minutes, I asked him what do you think about markets, the reply was, markets is surrounded by so many things now, its difficult to track each factor, we are playing stock specific. Individual good stocks are going to give awesome returns.

Nevertheless I am going to give it a shot, but let me gather my thoughts, what are those so many things, Indian economy in terms of current account deficit, balance of payments, debt burden, crude oil levels, forex levels, GAAR. Center policy paralysis, interest rate cycle, forex flows, other emerging economies, Chinese markets and demand, US economy, European economy, investor sentiment due to cases like Coal India etc etc. so many things. I find myself fledgling while writing about these things, well I am not going to make it too much technical by divulging numbers but let me give out some conclusive thoughts of mine on each factor.

Indian Economy

Needless to say we are in a bad shape, gigantic current account deficit, GDP target was a miss, and foreign flows are in confused state. What government needs now is sustained fund flow, they have already made many stop gap arrangements, the deficit is just out of control now. National savings are almost reaching to lowest levels. Despite these facts, government comes out with GAAR, crates so much confusion about much fearful P note structure and puts the whole market in a dizzy state.

It is so clear the center is trying to be brave, without really having the bravery at heart. GAAR is really a good thing, I feel (many may just blast me, some already have). Just think about this thing, the US government gives no rebate to the people deploying their funds in US and earning them there and taking it back. An US NRI individual who deploys money in India in equities has to pay tax on mark to market gains that to at 30%. So he is taxed at 50% on the gains which are not earned and no remedy in case of loss.

Just think in this context, Mauritius route was used by these people, to just do the business in India, earn the income and now you owe no tax to India. What’s the difference between Britishers and these companies. Yes, the loop hole was purposefully there, we needed funds then, it was exploited too that well. But now let’s not look at Law, Please ITS SPIRIT OF THE LAW what is important.

Having said that, can we afford to implement it, I think, No and that’s why center is again on back foot. So why this unnecessary step, This GAAR has just poured oil on burning ship. It’s a negative sentiment builder for markets and market looks no good because of this. The Investors are just fearful of the policies.

 IIP numbers revision (substantial) is so normal that believing them seems a risky affair. The data inaccuracy is extremely accurate at each IIP revision. So the markets will just not give a damn to IIP numbers now. Well analysts will, as their job becomes so difficult, as they will have to revise their estimates as best case, status quo and worst case each time.

Fund flow is really a concern. After having seen a huge money being poured in India in January 2012, the flows almost have dried up. The projection of dollar is worrisome, Fiscal deficit problem is pandemonium as most of the importers are also preparing their projections with Rupee at 60. Dollar index is already projected to give breakout and if it does, scenario for market will be very bad.

If Rupee continues to depreciate it doesn’t make any sense for FIIs to bring in the money now, already most of them who brought the money at 45 – 48 are seeing 10% portfolio erosion just like that.

Countries competing India (BRICS) are showing better growth prospects, Russian valuations are still very attractive, China is still a money puller, so in the month of march when these countries were flooded with money, India was rubbing the hands.

EURO issue

“Euro Crisis” is no more a crisis it’s a regular phenomenon. I say this cause at least for two years negative GDP growth is expected in Greece and spain. The deficit these countries are creating is mind boggling, sometimes I feel it makes lot of sense for them to just leave the euro and start up fresh (meaning which they should declare themselves insolvent). They may be burdened with many penalties but pain will just be for shorter time. Many countries in past opted for this. This scenario will be a havoc for markets.

Anyways this is not happening.

Still Spain is facing a problem now, yields spiking as concern over deficit are rising, so it’s a persisting problem. This problem just cant be resolved so easily. The money flow will continuously happen and the effects will be in the form of bubble only. The negative GDP growth for these economies is an accepted reality, any positive surprise will be welcome, but it’s not expected.

US is certainly stable, the demand is reviving. Job situation is stable, the markets are breaking out and it has been one of the best markets in terms of performance since last one year. Technically it looks like breakout, not sure though, I just cant accept that US got over its problems of recession, turbulence, debt burden. The 15 trillion economy which is AA+ still faces the risk of one more downgrade in next one year. Well S&P won’t do it this time specifically after what happened in last September. No conclusion here!! I am not decisive here.

 Chinese growth expectations are moderated nevertheless, growth is still going to be around 8.2% . IMF expects the rebound in Chinese economy and growth may be around 8.8% on resilient domestic demand. China during euro crisis shown tremendous resistance due to strong domestic consumption and private investment, but it is expected now to enter slowdown in the real estate and exports.

 India has projected growth of 7.6% for this fiscal year against which IMF sees India growing at 6.9%. the numbers are not very attractive considering India as emerging economy. Nevertheless the concerns are almost about delivering the same without deviation. Monsoon is the key and the June & july will set the course.

My View

I am not very positive about markets. Rate cut of 50 bps by Subbarao is positive move for economy, but I have always seen markets falling with rate cuts when the interest rates are at such a peak level. I expect markets to fall, the sentiment is pretty bad and things are getting ugly. The economy revival due to rate cut will happen only when the actual impact of rate cut is passed on to the companies.

The political scenario is not looking so good, but I don’t bet on it, I am waiting for 4800 on nifty may be lower.

Lets see!!!

Budget & Women (impact)

“I have to be cruel to be Kind” Shakespeare lines from hamlet taken by our FM Mr Pranab Mukherjee were true if the budget has to be analyzed for women. Budget this time although increased basic limit for taxation for women (previously Rs 1,90,000 to Rs 2,00,000) by Rs 10,000 but the increase wasn’t specific to women unlike last budget where women had lot to cheer over men.

Well Even though previous additional exemption limit have had no major impact on tax savings but this move is more likely on the principle of treating women no differently from male taxpayers. The income tax liability w.e.f Assessment Year 2013-14(A.Y.) will differ only on account of age and income not on the basis of gender. So Mr Mukherjee is very well on that track to meet the expectation. So women tax payers who are used to seeing extra tax benefits will have to get used to this phenomenon which starts from this budget.

Mr Mukherjee did bring lot of new incentives sighting long lasting impact but those will take time. This budget had more pinching things than the reliefs.

 
The gold price this year itself has taken a toll, nevertheless, FM did not hesitate in increasing the customs duty & excise on gold jewellery, that means the gold jewellery prices will increase across the board. This certainly has been disappointing part, as, much of the savings at household level has been in terms of gold only. But gold coins of purity above 99.5% will be cheaper as compared to bars as there is no excise on them and silver jewellery has been left untouched. So accumulation of gold coins will be little cheaper.  

At household level, FM has set the LPG prices to rise again. The quantum is not clear yet, but it will certainly raise the eyebrows of most house makers. Its very clear that government is hardly been able to manage their finances (they have more expenses than income) which most of our Indian house makers & working women manage it very smartly and regularly. This problem will lead to increase in fuel prices and in turn prices of all food items will also rise incidentally. The fuel price hike has not been done yet. The house makers will have to face lot of challenges with this price rise scenario which has been regular since last two years, nevertheless, Indian women have been very well trained to do the same as once in a while onions and oranges cost the same in India. Smartly managing finances this year is a key, as, some more shockers in terms of prices of commodities are expected.

Shopping is going to be expensive this year, as the excise and other duties have been raised, so cosmetics to apparels everything will be costlier this year by 2% to 5% and may be more as imports will cost more. Not only clothing but, appliances like washing machines, refrigerators, AC s everything will be costlier. Many of the houses will have to see these appliances planning going for a toss.

Overall travel cost is set to rise this year as service tax has been increased and leisure travel will cost more and more. Cars will cost more, and may be petrol will cost more.  

So what good this budget actually has done, Mr FM has been cruel at taxing many house makers anticipating, this time as well, they will manage, but he has been kind while passing on benefits to the empowerment of women.

He proposed Under the Rajiv Gandhi Scheme for Empowerment of Adolescent Girls, SABLA, to spend Rs.750 crore. He was specific in quoting “Protein deficiency among women and children is one of the common sources of malnutrition in India. I propose to reduce basic customs duty on soya protein concentrate and isolated soya protein from 30 percent to 15 percent”.

FM has proposed that women borrowers will be given the benefit of lower interest on housing loan. Details are awaited.  But will certainly will be a booster for women as many of the women are self employed and actively tracking investment in various asset classes.

The budget as usual emphasized on multiple women empowerment schemes which were more concentrating on poorer section of India. The benefits of the same will be revealed over a period of time. Overall the budget for house makers and working women is taxing only, as in order to keep the house in order they will have to do much more as budget has more of thorny outline this year.