[sharetrading] Sharekhan Budget Special: Union Budget 2010-11: Managing expectations [1 Attachment]

 

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Sharekhan Budget Special: Union Budget 2010-11: Managing expectations

 

Sharekhan Budget Special [February 26, 2010]  Sharekhan www.sharekhan.com

Summary of Contents SHAREKHAN BUDGET SPECIAL Union Budget 2010-11: Managing expectations  Despite the backdrop of a recovering economy, high fiscal deficit and rising inflation, the Union Budget 2010-11 has managed to more than meet the market expectations. Perhaps the expectations weren?t very high anyway. Not to take away the credit from the finance minister, the market sentiments are boosted by the fact that the finance minister has addressed the key issue of containing fiscal slippage and has outlined a clear roadmap for fiscal consolidation for the next three years. This essentially allays fears of crowding out of bank credit for private sector and the lower supply of government paper eases pressure on bond yields.  While the fiscal deficit target of 5.5% for FY2011 seems to be achievable, a lot would depend on the government?s ability to contain growth in expenditure (subsidies etc) and successful execution of divestment plans. Meanwhile, the budgeted 18% year-on-year (y-o-y) increase in gross tax receipts seems achievable given the improving economic conditions. The three key takeaways from the budget are: Move to fiscal consolidation with a clear roadmap for the next three years (manageable net borrowing by the government this year). Sustain economic recovery through higher investments (enhanced outlay for infrastructure development through planned outlay) and to boost consumption (by increasing the disposable income by expansion of tax slabs for personal income tax and continued spending on rural development and employment programs) Hint at kick starting the key reforms by unwinding the subsidy burden (both fertilisers and oil), banking reforms (more license for banks), coal regulatory authority and commitment to implement tax reforms (both direct and indirect) in 20

Regards, The Sharekhan Research Team

 

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