Budget 2011: The bullish view stays

The overall tone of the Union budget is growth oriented. However, on the fiscal side, there seems to be a sleight of hand in order to show a lower fiscal deficit next year.

An analysis of revenue and expenditure for the last quarter  shows there was no way fiscal deficit would have exceeded 4.5% of GDP.

However, taking into account a lot of subsidies and other payouts into the current year, the government has met the targeted fiscal deficit figure for the current year and shown a lower figure for the next year so there is an impression of a progressively improving fiscal deficit.

A key positive is that excise duties have not been increased.

The net borrowing figure for the next year at Rs3.43 lakh crore, accompanied by a very low expenditure growth, is also a positive as it will avoid crowding out of private investments.

The other big positive for me is the move to allow foreign nationals to invest directly into the Indian stock markets through the mutual fund route. 

The negatives are that despite the buzz about high fuel prices affecting airlines negatively, there is no move to reduce ATF prices by giving them declared goods status. Also, there have been no real moves towards liberalising the FDI policy.

The continuous urge to postpone important reform decisions and a perceived lack of governance have been a major reason for Indian markets underperforming most large global markets over the last 4-5 months. 

Also, despite much talk on agricultural reforms, no large move on the fiscal incentive side has been made in the budget.

The overall impact on the market is likely to be positive.

The budget seems to be both growth-oriented and anti-inflationary in intent. Unless the global commodity scenario turns out to be much worse than projected, the fiscal projections seem credible.

Systemic liquidity should improve significantly as government spending needs to be very high for the remaining part of the current fiscal year. Although the projections of a 9% real GDP growth for 2011-12 seems to be optimistic, growth should continue to be strong at 8% plus.

In conclusion, the budget does nothing to change my positive view on the markets and the target of 25000 Sensex and 7500 plus Nifty levels over the next 12 months.

Sandip Sabharwal is CEO-PMS, Prabhudas Lilladher