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Vivek Bendre

Budget ahoy: The market gave a thumbs-up after the election results. Would the Budget elicit a similar response from investors? –

Amid certain obviousness and a lot of vagueness, the Budget announcement for 2009-10 on Monday will set the tone of market proceedings this week. The market might not necessarily like the direction of the economy that the Budget document may seek to give when the country needs to address conflicting claims.

So far, the Government has kept the hope alive of a tricky balance between growth impetus and fiscal prudence. The market’s euphoria and soaring expectations immediately after the elections results in April have, however, become moderated in the intervening period.

Even then, the Sensex showed a recovery over 80 per cent from the March lows. The benchmark returned 52 per cent in the first quarter of the current fiscal. This despite large-scale EPS downgrades.

The market has placed its bets on an upward turn in corporate earnings. It wants the Budget to catalyse a faster economic recovery, which can cradle healthy earnings growth of the companies.

Market players generally expect the Government to pump in money to spur demand and growth. Bulls are obviously ready to ignore the cost associated with the monetary expansion.

Analysts who say that fiscal deficit is a key concern, particularly for the overseas investors, but advocate pump priming do not, thankfully, prepare the Budget of an emerging market like India.

But the contradictions and over-simplistic equation of reforms with disinvestments apart, a large section of market players want a roadmap rather than quick-fixes.

According to market intelligence, a section of long-term investors are ready to invest little more aggressively if the Budget signals new momentum in economic recovery and not the instant solutions.

The immediate reaction of the market may depend on tokenism, but the broader direction of the market would lie on fundamental changing proposals.

This Budget, though an annual affair, is likely to set the policy stance for the long term, and may attempt to create a situation to build on through changes and actions along the way out of current doldrums.

Discerning investors would act if there were cues for removal of bottlenecks for faster execution of the stated plans. Going by the indications, the Budget is unlikely to elicit dramatic response from the market either way. There may be pockets of disappointments for the short-term and cheer for surprises.

But market’s volatility may not get smothered immediately as a large number of traders are sensitive to instantly determinable factors based on their committed positions.

(Responses may be sent to jayanta_mallick@thehindu.co.in)

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