Conversations with Arun Thukral, MD & CEO - Axis Securities
Feb 29, 2016
A big sign of relief for the markets as budget is behind us. Single most number in the mind of FIIs has been of Fiscal Deficit - that has been on track at 3.5% for FY 17. Secondly market was under fear of re-introduction of Long Term Capital Gains Tax and increase in the rate of Service tax - both negatives did not come true and this will cheer the markets in short term. In the medium term it will again align with the global vagaries.
Budget 2016 has addressed an important section of economy- the RURAL economy, though not populist in nature. The rural India, which represents 2/3rd of the population, has been under duress on account of 2 back to back a failure of monsoons. The allocations to irrigation tripled, Govt. targets to double the farm income over next 5 years. Crop insurance, higher MNREGA allocation & 15% YoY growth in agri-credit are few more measures taken to alleviate the stress in rural side of the economy.
Moreover, the budget has been realistic in nature. The budget sticks to the promise of following the path of fiscal prudence with target of 3.9% for FY16, 3.5% for FY17. The planned expenditure has seen an increase of ~15% with special emphasis on sectors such as agriculture, irrigation social sector including health, women & child along with infra. The Govt. has indicated its commitment to introduce the Aadhaar bill which will enable it to control & target the subsidy to the actual end users thus plugging the leakages.
In the latest developments, experts have indicated that the El Niño conditions (responsible for failures of monsoon) have peaked & are slowly waning. They point out that after transitioning to neutral conditions, the sea-surface water temperatures in the equatorial east and central Pacific Ocean could continue to cool to the point that La Niña, which is responsible for good rainfalls in South Asia, may emerge. Good monsoon followed by bountiful harvest will enable the growth in rural economy, which if supported by the urban consumption will enable economic expansion. Low & stable crude oil prices seem to be reality at least for near term, India imports 75% of its oil requirements.
Globally, the volatility persists, headwinds still exist in form of Britain’s decision to stay or quit EU, challenges to European banking system, China’s growth etc. Indian markets, being a part of emerging world will be following the trends of global markets, as we do not see them de-coupling in near term. But in long run, we feel India outperforming on account of it’s better macros, demographic dividends, growth potential etc. Use volatility to SIP in stocks.
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