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9 appears to be the FM’s lucky number – so will the Nifty hit 9000?
Mon, Feb 29, 2016
Source : Citrus Interactive

9 appears to be the FM’s lucky number – so will the Nifty hit 9000?

The FM listed 9 pillars of his economic policy and then went on to list the 9 tenets of his tax policy. It seems he is a fan of numerology and 9 is his lucky number. So will the Nifty scale 9000 points again? Let us not get beguiled by where the market is now or how did it behave today. We need to look at the budget from two perspectives – the short term outlook and the medium to long terms lens and answer that question.

What we liked about the Budget:

No grandstanding. No playing to gallery. Simple statement of facts. It is admirable that in an environment of global slowdown India is likely to clock 7.6% GDP growth.  Concerns were laid out clearly at the outset – need to build firewalls to protect the economy from global shocks. Using domestic consumption as the means to do it. And using economic reforms and policy to improve the life of the population.

Urban consumption has supported the economy for the last two years. Successive monsoon failure in 2014 and 2015 and a destruction of the rabi crop due to unseasonal rains in early 2015 has dented rural demand. Pushing allocation to the rural economy coupled with a benign outlook on monsoon in 2016 is just the second engine we needed to take the train of the economy uphill in a challenging year globally.  A dramatic allocation of Rs 2.18 trillion to Roads and Railways combined for FY17 is surely going to have a multiplier effect on income and employment and keep the infrastructure sector humming.  Strong domestic demand will eventually bring the private sector investment out from its shell.

What we did not like

Most of the points here are from the short term perspective. Dividend distribution tax (DDT) appears irrational – this is now a case o triple taxation. First the profits of a company gets taxed, then the dividend gets taxed at source before distribution. And finally it gets taxed in the hands of the recipient whose total receipt exceeds Rs 10 lakhs.

Banks will need more than Rs 25,000 crore for their capitalisation. Car sales have begun to splutter and an infratstucture cess varying between 1 to 3.7 % on petrol and diesel cars chokes the demand more.  Markets didn’t like raising the STT on options.  But if you are not the speculative or trading kind, does it really matter?

So will the Nifty go to 9000?

The current level of the market is more attributable to what is happening globally. Risk taking is not fashionable for some time. Everybody is looking for safe havens. Not surprising then that gold has appreciated by almost 17% in the first two months of this year. FIIs continue to be net sellers, with a few days of respite last week. Hopes of improvement in corporate performance have been belied this quarter too.

How will this picture look like in Aug- Sep 2016?  A good monsoon and the enhanced flow of budgetary allocation to the rural economy will revive consumption demand. Two –wheeler sales will need to be watched closely. Many more kilometres of new road will be visible. Order book of construction companies will tell us how many more are being built.  Quarterly performances of Sensex and Nifty companies will show a remarkable uptick. Globally the situation will be far more clear – either for the better or the worse.  So, will we see Nifty at 9000 in the 9th month of the year whose numerals add up to 9 (2+0+1+6 =9)? You decide – or bet on FM’s lucky number!

 
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