The markets: Uncertain phase

The stock markets do not know whether they are coming or going and whether the Budget is a bonanza which the finance minister says it is or just another mirage. The figures are all there - a deficit only slightly less than last year's, more than a million taxpayers taken off the hook and fresh taxes of less than 2 per cent of total expenditure. Does it mean growth or does it mean inflation? The markets are not too sure, for last year also the finance minister had said that he would eat his hat if prices went up, but the prices did go up, and so did the share prices, making 1980 one of the best years on record.The Budget figures should not be taken too literally, but on balance the stock market should do well out of it. First, the relief in income tax to the tune of Rs 145 crore cannot but affect the share prices favourably in the long run. The bulk of the taxpayers affected belong to the middle-middle class - in George Orwell's phrase - and many of them are already touched by the share fever. Contrary to popular impression, teachers, clerks, small farmers and traders form a sizeable proportion of the new share-owning class - possibly as much as 50 per cent - and with more cash in their hands, they are bound to make their presence felt on the exchange floor. To that extent, the reliefs are bullish.Both Directions: The unknown factor in the Budget is its likely impact on prices, but inflation, provided it is kept under control, is not all that bad for the share market. It is bad only if it is excessive, for then it eats into profits and often into capital and affects corporate performance all round. Broadly speaking, inflation around 15 to 20 per cent - preferably 15 per cent - is tolerable but beyond 20 per cent it is positively dangerous. If the markets appear to be hesitant, it is because they do not know, or cannot guess, what is in store for them, but they should do so very soon, probably after a month or so when the implications of the Budget begin to sink in.In the meantime, prices seem to have moved in both directions, but the undertone is bullish. Rayon and synthetics scrips have gone up, following the levy of auxiliary duty on the import of polyester fibre. Cotton textile shares have receded a bit in reaction to the higher excise duty on cotton fabrics. And Peico Electronics has perked up as the Budget has proposed fiscal concessions for various electrical and electronics products. Steel company shares - mainly Tata Steel and Mukand - are looking up because of higher steel prices and also better working. Tata Steel has crossed 140.0 and may touch 160.0 as the modernisation plan begins.Better Show: There is also another factor behind the buoyancy - the general feeling that, after a gap of nearly 10 years, things are beginning to look up on the industrial front and given the present Government's benign outlook towards the private sector, this is bound to have a beneficial effect on the share markets. Despite constraints on growth on account of poor supplies of fuel and energy - and, of course, high prices of oil - the Budget statements reveal that the Government has been able to collect an extra Rs 500 crore in excise duties over and above the budgeted estimate. This is despite the fact that, according to official figures, there has been only a mild increase in industrial production - no more than about 2 per cent over last year.With the expected improvement in the infrastructural facilities - and according to the finance minister the improvement is already substantial - the corporate performance during the current year should be even better. In fact, most companies did pretty well last year, and only a few - Cadbury, for instance - had a rather bad time. With an improvement in the supply management, the companies should do even much better this year and it is perhaps this gut feeling about coming improvements that is responsible for the general buoyancy on the market. In fact, the Economic Times share price index reached a record level of 223.9 on March 3, just three days after the Budget.Published By: AtMigration Published On: Nov 25, 2013 14:17 IST--- ENDS ---

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The markets: Uncertain phase

The stock markets do not know whether they are coming or going and whether the Budget is a bonanza which the finance minister says it is or just another mirage.

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