The budget is
round the corner and so all the market buzz is around it. Given the current momentum on reform measures, the expectations are high and analysts anticipate continuation of positive developments in the budget as well.
The fiscal deficit and the current account deficit are the two most worrisome macroeconomic aspects.
According to Angel Broking, attracting capital inflows will be the priority while populist measures, such as the National Food Security Bill, are likely to come later during the year, closer to the general elections. Stability of the macroeconomic factors is also important to avoid any further downgrading by credit rating agencies.
Another slippage in the sovereign ratings could adversely impact capital inflows, the currency, and availability of cheaper overseas finance for the corporate sector, business sentiments and thus affect the market sentiments as well.
Kotak Securities's pre-budget report says, the market's focus will be on fiscal prudence, effective implementation of investments and the impact on various sectors. The future performance of
our Model Porfolios also depends on these factors.
The growth-oriented portfolios - Wealth Maximiser, Money Builder and Stable Growth - have highest holding in the financial sector.
The banking sector will be watching the fiscal deficit initiatives closely. Credible signs of fiscal consolidation would be positive for banks from the point-of-view of lower government bond yields and interest rates. Also, any tax sops for fixed deposits (FDs) such as treating interest income on FDs with maturity of 3 years and above as capital gains will increase deposit mobilisation for the banking sector.
On the other hand, any increase in interest subvention or lending targets in the priority sector lending will be negative for the banks.
With second and third-highest equity holdings in Money Builder and Wealth Maximiser, respectively, energy is another important sector to track. Rising crude prices have resulted in mounting underrecoveries for oil marketing companies (OMCs).
According to Angel Broking, budgetary measures providing clarity on subsidy sharing mechanism between upstream (Exploration and Production) oil companies and OMCs plus hint on potential increase in prices of diesel, LPG and kerosene will be positive for OMCs.
Re-introduction of 5 per cent customs duty on import of crude oil will be positive for Cairn India. On the whole the budget is expected to be positive for our portfolios.
