Budget 2011: Indian mutual funds may catch on faster in Gulf countries

The budget has a pro-growth approach with an eye on rural empowerment & social inclusion.

From a mutual fund stand point, the fact that foreigners can invest in Indian mutual funds is a positive.

However, fund houses will have to look at country-specific regulatory framework to take this ahead. This is expected to have faster adaptability in case of countries that understand Indian markets better like those making up the Gulf Cooperation Council.

The budget has done a good job of providing more avenues for raising money. Infrastructure financing was made easy while maintaining tax sops for investing in infrastructure bonds, clearly a positive. Also providing impetus to overseas borrowing by facilitating setting up of infrastructure debt funds is a positive for this sector.

Projections on the revenue and expenditure side look aggressive. Only 3% growth in overall spending leaves little room for a fiscal slippage during the year. The budget has made no initiations towards creating cushions against crude price volatility.

An area of concern has been a lack of clarity on oil and fertiliser subsidies. We believe that in an atmosphere where the domestic growth, banking system and consumer confidence is in good shape, there was a strong case for focusing on oil and fertiliser subsidy.

From an equity market perspective, the medium term outlook remains volatile, responding to crude fluctuations. Crude oil price behaviour will be a far more important factor than valuations, which look fair as of now. We continue to believe that infrastructure sector has underperformed despite its vast potential in the current economic context. With the government focusing on infra financing and debt, this segment should see improvements in execution. The consumer durables and auto sectors will gain from status quo on excise duty. Sectors like the oil marketing companies will be pressured due to their inability to pass on price increases.

Nimesh Shah is managing director & CEO, ICICI Prudential AMC