The much awaited Union Budget for the FY 2011-12 has been presented by seasoned and senior economist cum politician Dr.Pranab Mukherjee on Feb 28th which indicates the government's intention on few reforms.
The highlights which help individuals and investors which might influence the markets are:
a. Increase in exemption limit for payment of Income Tax for various categories.
b. Increase in exemption limit for investment in Infrastructure Bonds.
c. Increase in exemption limit for Housing loans for considering them under Priority Sector lending by banks.
d. Assuring to introduce GTC and DTC from April, 1st 2012 as originally planned.
e. Reduction in age limit for eligibility to be Senior Citizen to 60years and 58years for Railways.
Announcements regarding Pension reforms, Insurance reforms, unearthing black money etc., are for consumption of gallery...as no definite set up or road map is announced. Talk about containing fiscal deficit, inflation are superfluous, without concrete steps, in view of elections to 5 states scheduled during the year 2011, are understandable from Indian Political stand point of view.
From my reading, shocks and surprises are in store as we enter the financial year on April, 1st 2011 or even after March, 18th 2011 when the budget session of Parliament comes to close, as budget has become a non-event for the past decade and Government and RBI are meddling with the Excise, Customs, Petroleum Product Prices and interest rates, when ever it is comfortable to them.
I do not understand one comparison as how Indian Crude Basket crosses 100$ already recently, while the Nimex Crude is below 100$ as of now, while Indian Crude Basket was 82$ in 2008 when Nimex went to 144$.
If we compare the price of Petrol in India while it is already Rs.66/- in metros, it was around Rs.50/- when Nimex crude hit all time high of 144$ in 2008.
Both Central and State Governments are earning huge revenue in the form of excise, sales tax / VAT etc., on petroleum products, thus, an actual increase of Re.1/- for OMCs will result in raise of Rs.3/- for the consumers. Neither the OMCs losses are compensated nor consumers are spared when ever the price of Indian Crude Basket comes down with Nimex Crude falling...Remember it came down to 33$ at one time from a peak of 144$, but conveniently, governments have ignored to reduce the prices of petroleum products and enjoyed the fruits of profits and excess revenue which is collected and is being wasted in ever increasing Non-Plan Expenditure year on year.
While coming to markets, 2011 started to be an year for Bears from Day one and as of now, our indices are trading below long term moving averages, while US markets are in bullish mode. I observe that this year 2011 may not have any bull run like what we saw from 2004 to 2007, however, will witness huge turbulence and volatility, as lot of uncertainty is hovering around the world and will be a good year for traders, with strong technical knowledge and strict discipline.
Remember 2010 saw an inflow of Billions 28$ which made markets to rally100%, while a meagre outflow of Billions 2$ have brought our markets into a structural bear markets, shows that how shallow and vulnerable our markets are. There is no market stabilization mechanism as it exists in developed markets like U.S. thus, price rigging, insider trading, go un-noticed for ever. Look at the prices of some stocks and sectors, which have corrected more than 50% in a span of one month, which were the darlings and delight of traders and punters.
Ultimately, it is the uninformed and greedy small investor who gets trapped and looks to average his junk stocks at every dip, and lives in the hope of bull rally for exiting at profit, which always eludes him/her as a mirage!!!!
Will come up of with derivative strategies shortly.
