The Hindu Business Line : Economic Survey’s misled optimism spoils party

The Survey had contained several suggestions including permitting FDI in multi-format retail, increasing FDI limits for banks, the phasing out of taxes such as Securities Transaction Tax and Dividend Distribution Tax. There was also a mention of disinvestment of PSU shares worth Rs. 25,000 crore.

But none of these measures were specifically dealt with in the Budget, said market-men.

“The Budget was perceived negatively by the equity market as there was a dichotomy between what was announced in it and what the Economic Survey stated. The markets had built up a lot of expectations around the Budget after the recent Economic Survey,” said Mr G. Chokkalingam, Head of Equity Research at Barclays Wealth.

“However, the major macro objectives proposed in the Economic Survey by the Government need not be implemented through the Budget. We believe that many of these measures would be implemented in the post-Budget period,” he added.

The market had also hoped for measures to for reduction of fiscal deficit through PSU disinvestment and reduction of subsidies.

After the Economic Survey was announced, analysts had (wrongly) predicted that there would be several market-friendly measures in the Budget. As a result the Sensex tanked more than 900 points as the Budget was being announced on Monday.

The Budget catered mainly to the constituents who voted the Government to power and not much to the markets, said Mr Vinod Wadhwani, Director at Ambit Corporate Finance.

Investors should not lose faith completely said analysts. “Lack of announcement of big ticket reform measures in the area of disinvestment or petrol price decontrol, et cetera, after their suggestion in the Economic Survey, has not gone down well with investors. However, numerous reform measures are unrelated to the budgetary process and hence can be implemented subsequently at a more opportune time,” said Mr Saurabh Mukherjea, Head of Indian Equities at Noble Group. “In my view equity market is disappointed because Finance Minister did not touch generic announcements like FDI hike in few sectors and no significant mention on divestments also made short-term participants more jittery. The laxity on the fiscal situation was also a disappointment. A higher than expected fiscal deficit also impacts investment cycle recovery,” said Mr Vikram Kotak, CIO, Birla Sun Life Insurance.

“In my opinion, equity market is likely to regain its momentum soon as government has focused on ‘Aam Aadmi’ by giving more money in hands of tax payers via removal of surcharge or increased limit on income tax slabs. Overall Budget will boost growth in medium-term and also offer protection against global worries if any,” he added.

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