Market Matrix – Analysis of Indian Budget 2008-09 : Beneficial for the industrial sector

By krsna Khandelwal – A veteran market analyst

Friends,

Have a look where the Budget Re comes from:

Corporate Tax : 24p
Income Tax : 15p
Excise Duty : 15p
Custom Duty : 13p
Borrowing : 10p
Non tax revenue : 10p
Service Tax etc. : 7p
Non debt Capital : 2p

(Total receipts would be Rs 750884 crs in 08-09 against revised estimate for 07-08 of Rs 709373 crs)

The Budget re goes for:

Interest Payments : 21p
Central Plan Exp. : 19p
States share in taxes : 19p
Defence Exp. : 11p
Other Non Plan Exp. : 10p
Subsidies : 8p
States & UT Plan Assistance : 7p
Non Plan Asst to States/UT : 5p

The goal of eliminating the revenue deficit has been postponed by an year.

Fiscal Deficit for 08-09 would be 2.5% against 3.1% for current year.

Total Budget Expenditure stands at 14.1% for 08-09 against 15.1% for current year, as a percentage of GDP.

Tax Revenue for 08-09 estimated at 12.9% against 12.5% for current year, as a percentage of GDP.

Subsidies would be 1.3% in 08-09 against 1.5% in current year, as a percentage of GDP.

It seems the FM has not lost track of reforms in the budgetary financing exercise even under pressure for populism. His budget has lower subsidy element and higher tax revenue as percentage of GDP. His budgetary expenditure is lower at 14.1% against 15.1% of GDP clearly tells that govt’s role is diminishing and welfare remains its main engagement while the investment initiative has been left with the private sector. It is said ‘Least Govt is best Govt.’ and this seems to be happening too. The only problem that may mar the whole dreamy state of expectations is that the spent rupee may not be fully utilised for the purposes it is meant for.

The food grain production has been estimated at 219.32 million tonnes for the current year and happens to be a record. There is yet a need to be vigilant on agricultural front as one bad monsoon may create hardship for masses.

The duties and taxes have been reduced barring a few cases which have no big importance generally but for the markets.

As has already been covered in sector wise analysis, nothing more needs to be told and the sector related share price movement has been in line with expectation, budget notwithstanding.

People are too worried for what is happening in USA and I don’t think so much weightage should be given to markets outside as we will be affected only for those particular sectors where there is supply of cheaper metals and have our IT export dwindle too much. This does not seem to be the possible scenario. The flow from USA’s capital pool has come down, may be due to fiscal turmoil there but with passage of time the cheaper interest rates there and higher interest rates here would pave way for money gushing back here. Further benefit will be that here too interest rates will reduce. We should not speculate about the re/$ parity as it is some thing which no body can predict and should be best left out for the calculation. The fall in market here due to foreign economic developments and market behaviour is a good opportunity to enter market here. I may reassure you that the excise duty reduction, Cenvat rate reduction, CST reduction and custom duty reduction together will be very beneficial for the industrial sector as a whole.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix after presentation of Indian Budget 2008-09

By krsna Khandelwal – A veteran market analyst

Friends,

I have just been free after listening to the FM’s budget speech in parliament. This may be termed as one of the finest budgets in the history of free India. It has reduced many a complications, given some relief to every citizen of India. The populist measures announced will not hurt any body but would help every body. The farmers needed help and have been given help. This class of society was being bypassed in the India’s march towards becoming a world economic power. I think no body should grudge it. The loan to farmers have been written off but at whose cost is not clear to me just now. If the exchequer is bearing this burden then its OK but if the banks are going to bear it themselves its OK too. Its because the banks may have already provided for the bad accounts and for the rest to be written off the tax relief will come in any case. Further benefit will be the saving of cost in recovery process. There would yet another benefit i.e. the future commands from govt. for distributing agri loans to all and sundry in the farmer groups will not be there for a long time to come.

The education related increase in budget outlays is again welcome for it will only help the industry to be able to get trained manpower , the dearth of which has become a concern now. The health related effort is also plausible as it is going to increase the general health of people and would be no burden to any body. The increased ceiling on tax free income will leave more of investible savings in the hands of younger people and is welcome. The young amongst us are not fearful of investing in stocks. The excise and customs duty relief is going to make our economy more cost effective and would spur a kind of industrial revolution covering every segment of industry. that there is no added tax burden is a relief of immense value. There is however a concerted effort to feed the investors with weaker times ahead but is by the organised bulls to actually corner more of stocks at lower rates. The scene may change from the gloomy to bright suddenly. I advise you to buy with the cash pool in your hands right away. The market is around 5100 Nifty level.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix as on 15 Feb 2008

By krsna Khandelwal – A veteran market analyst

Friends,

US Treasury Secretary Henry Paulson unveiled ‘Project Lifeline’ which offers an additional 90 days to people who have been behind 90 days already before the foreclosure is resorted to by the banks in respect of the home loan mortgages.

Prices have been hiked by Rs 2/litre for petrol and Rs1/litre for diesel. I think this will have no impact in the market place and on the fortunes of oil companies as this has already been factored in. This hike has come after 22 months during which time the international crude prices have soared from $67/bbl to $92/bbl. LPG and kerosene prices are static since 2004 and 2002 respectively under a govt. which cries for reforms and does every thing to let some people do the black marketing. It should have only a minimal impact on inflation.

Steel makers have slashed prices between Rs. 500 to Rs. 1000 per ton to please the minister apparently but some how the market also refused to be happy with the raised prices hence the decision in not entirely due to govt pressure. In fact to means nothing this way or that for the industry in near term.

VSNL renamed as ‘Tata Communications’ will be spending Rs 8000 crs for global network cable laying.

Eicher Motors Jan 08 sales are down 17% to 2252 nos.

IT now contributes 5.2% to GDP against 1.2% in 1997-98. Direct employment is now close to 2 million and is growing at 26% per year. I think IT contribution has to grow for many years to come, it will be more based on local demand in future.

I think shares and bonds and other listed instruments should have a simple system for taxing gains . Those who value stocks at the closing price (quoted rates) at the end of the accounting period should be taxed for gains as if it is business income and losses should be allowed to carried forward. Those who reflect the stocks at purchase price at the end of the period should pay a simple 10% capital gain when stock are sold irrespective of short or long term nature of the gain after offsetting losses if any during the period under assessment. The STT should be reduced to nominal .001% in all pockets including the F&O section and should not have any bearing other than as that of cost of acquisition or sale. This will make the matters simpler for the assessing authority and make life easy for the trader or investor. By keeping the question whether some body indulging in shares and stocks is a doing it as investment or trading based on some complex set of rules is a wrong thing to do in present day circumstances. This will have no revenue loss or unreasonable punishment to any body. Even the foreign parties should have to pay taxes like this where there is applicability of tax on them in India. The legal minded FM will have to earn an ire of the legal community and the CAs for making things simpler and may be this lobby does not allow the laws to be made simple.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Security Transaction Tax and its effect on low income group

By krsna Khandelwal – A veteran market analyst

Friends,

If and when the FM regains sensibility he should spare the stock markets visiting crowd of the draconian tax in the form of STT(Securities Transaction Tax) which is on top of service tax on brokerage. He should realise that he is letting of the moneyed to pay just 10% of the gains on short term transactions and nil on long term gain while those under the ceiling of Income Tax payable income are having no benefit but do bear the burden of STT. I have stated many times that the Congress govts. are pseudo socialists and the left is no better. They have always been devising such taxation schemes that would not let the low income people come up easily. In the end I would say the justice demands that the STT be done away with and share trading or investment profits should be simply clubbed with normal income for the purpose of tax as in todays IT environment it is easy to calculate the profits etc. At best, in the interest of not having to refer to back records the long held securities may be taxed at the flat rate of 5% of the sale value without going in to the question about length of period of holding or the loss. This may be called by any name to justify the character and should be uniform for all types of investors who happen to be earning taxable income.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix as on 23 Jan 2008

By krsna Khandelwal – A veteran market analyst

Friends,

10% surcharge on Income Tax may be reduced or scrapped in coming budget.

REL has issued 4.30 crore warrants and has raised Rs7835 crs through it, now the net worth of company stands at Rs18150 crs.

Rates of steel ingots have improved to Rs. 25500/ton and this would be in the interest of Sail and Tata Steel maintaining profitability.

World Cap. of listed securities of the world stands at $533525 bn , India has share of 2.8% , it had more than 3% share only a fortnight back.

US Fed has curtailed bench mark rates by 75 bps and Fed Fund Rate is now 3.5% and the discount rate is 4%. This action should be followed by RBI , it has to keep India from inviting too much capital. In fact, since the saving rate in India is high , it is good that some part of it gets converted in to risk capital by withdrawing some advantage of keeping it saved for interest earning. This action will spur consumption expenditure and will business less risky due to cheaper availability of capital. Inflation etc should not be consideration as long as there is no deficit financing for the state.

FM is vocal about the resilience of the Indian economy but I must say that the guidance of economy has been lax in seeing to it before hand that such movement is not enacted like the recent fall without a situation on the economic front inviting it. It should have been clear to them that advance against risk capital assets like equities to public is a basic fault and banks should shut window for such advance to individuals and also to others without enough collateral security. This has been responsible for forced sales earlier and this time. Leveraged trading is allowed in F&O section hence further leveraging through advance against shares held is a bad idea for the health of capital markets. When 20% fall can occur in 20 days what would happen in times of war or civil unrest or other black swan appearing. In fact black swan theory has been proved now by what has happened the world over.

Another need of market is to allow registering of week long non-amendable orders backed by cash/security which will always have priority at all times and have 1/2% subsidy/reward from seller/buyer. Data for this should be accessible to all participants. This will impart depth to markets and would evolve trading in the same spirit as market making.

I am happy to see the recent recommendations under ‘panch-tattva’ being of value to investors.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market