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Long Term Investors In Indian Stocks Should Not Worry

This article was posted on Jul 6, 2009 and is filed under Market Outlook

Budget speech cannot solve all our problems,” said the Finance Minister Mr. Pranab Mukherjee as he began his speech today. And what he delivered (or didn’t) was exactly what he said at the start.

His budget for 2009-10 is now being seen by the media as a non-event given that the speech did not include much about the four key topics the markets were awaiting with bated breath – divestment, FDI, fuel policy, and corporate taxes.

But then, as the FM concluded his above statement, “…nor is the Union Budget the only instrument to do so,” one would not be wrong in expecting that he (the FM) and his team will follow up this Budget with measures aimed to get India back on track to improved growth over the next few years.But the stock markets did not seem to be happy as seen from the massive crash that the BSE-Sensex saw after the Budget was over. What seemingly did them in was the FM’s no-stance on the key topics as mentioned above, as also the grim forecasts of the fiscal deficit that is expected to touch 6.8% of GDP in FY10, as compared to 6.2% as per provisional accounts of FY09. This level of deficit is a matter of serious concern though the FM did not talk about any real measure to reduce the same going forward.

Coming to the specifics of the Budget, while there were a whole lot of doles and grants for social sectors (and deservedly so), the scale of the same with no real announcement of a major revenue collection exercise really caught us by surprise. The finance minister also pricked some nerves by not reducing the corporate tax rate and also hiking the minimum alternate tax (MAT) from 10% to 15%.

Among key sector policies, while the budget had no real message for oil pricing, there were some scattered announcements that dealt with the government’s initiatives towards improving the quality of infrastructure in both urban and rural areas. Also, while healthcare received some attention, there were no real pronouncements on the education front.

The FM also made an attempt at giving some relief to the individual taxpayer by increasing the exemption limit in personal income tax from Rs 150,000 to Rs 160,000 for all categories of individual taxpayers except women and senior citizens. For women taxpayers, the exemption limit in personal income tax has been raised from Rs 180,000 to Rs 190,000. As for senior citizens, the limit stands raised to Rs 240,000, from Rs 225,000 earlier.

All in all, the FM focused a lot on the social sectors and the ‘aam aadmi’ while giving a cold shoulder to corporate India, and therefore the stockmarkets.

But we, as investors, should not be complaining at all! After all, a budget is nothing but an annual exercise and must not define an investor’s long term investing objectives.

There should not be a real change in our view on stocks post the Budget announcements today. While speculators and traders might feel the pinch of today’s crash that seems more like a knee-jerk reaction, long term investors need not worry at all but for a caveat that the government’s rising deficit might mean higher inflation and interest rates in the medium term.

From a long tern perspective though, we must maintain our faith in some Indian companies that will emerge out of the current crisis much stronger.

Source: Indian stock news

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