Budget Factor - Don't get carried away

One more year passed by with India sustaining the 8+% GDP growth. The stage this week is set for one more dream budget to be delivered by finance minister.

The question remains if India can going forward sustain the 8+% GDP growth and also how the budget addresses the following concerns

1) Impact of Indian economy on US, Other major economy slowdown and the high probability of US economy entering into recession.

2) Rising raw material and crude oil prices. This leaves no room for Interest rate cut due to rising inflation.

3) Hard hit export intensive sector due to dampening of US consumer spending and appreciating rupee, especially textiles which is the major source of employment in India.

4) Losses booked by Oil Marketing and Oil Exploration PSU's due to Subsidy burden related to high crude oil prices.

5) Widening trade deficit.

6) Increase rural infrastructure spending and open up new employment opportunity. Widening gap between state's economic growth has resulted in a divergence in national per capita income.

Even though most of the concerns above is expected to be addressed in the budgetary note this week, We suggest our subscribers to take a cautionary view on the market and not get carried away by movements of stock on the back of Budget benefits.

The two key factors which we look forward to guide the Indian stock market are

1) Q4' 08 earnings. This will give us a clear picture on Impact of margins due to increase in raw material and oil prices. Also will help us gauge the repercussion of US economy slowdown on export intensive Indian firms.

2) US Economy outlook. With losses from subprime lending mounting to around $350 billion, US is admist a major economy slowdown. The US housing market as well is not showing any sign of recovery and the deteriorating consumer spending shows negative signal on consumer confidence with the economy.

Our Budget Wishlist

1) Increase rebate u/s 80c from 1 lakh to 1.5 lakh. Out of which make 30K mandatory in Infrastructure bond/GOI tax saving bonds.

2) Keep corporate tax unchanged and reduce excise duty and freight charges for Metals, Cement sector. This will keep the inflation at lower levels.

3) Tax FII's on short term capital gain. This will help market fundamentals on a longer term basis.

4) Extend tax benefit under 80 1 B (8 A) for pure research and development-based companies. This will help India move from a Order Taker outsourcing country to a Solution/Product Innovator country in the global arena.

5) Work on pension fund flavors. Protected - Existing. Dynamic pension fund - Choice of Investing 30% of the total pension money in Stocks (Namely Sectoral Index). Individuals can invest in any of the Exchange sectoral index and switch between indexes as and when required. This will help pension fund individuals to cash in from the growing economy.