The fiscal deficit for April-May stood at Rs 2.4 lakh crore, amounting to 45.6 per cent of the Budget estimates for 2014/15, compared to 33.3 per cent in the same period last year. The fiscal deficit for the whole year is pegged at Rs 5.28 lakh core.
The Rail Budget on Tuesday, July 8, and the Union Budget on Thursday, July 10, will set the tone for the market and will be keenly watched by the investment fraternity as this will show the roadmap and the intention of the new government.
FULL COVERAGE:Union Budget
In the given circumstances it's a dilemma for the government to choose between curbing inflation and promoting growth. Given the fiscal condition it can't neglect inflation and deficit.
The market expects the government to come out with harsh measures to control inflation and the deficit, as well as to bolster growth. Most of the foreign investors as well as high net worth individuals (HNIs) are bullish on the new government and are investing taking a three to five years perspective, unlike few months back when they were talking of a short to medium term outlook of one year on India and Indian equities.
For instance, Royal Bank of Scotland (RBS) that runs one of the largest HNI wealth management portfolios in the country has seen investors rebalancing their portfolio back from debt to equity. A conservative investor typically is investing 45 per cent of his money in equity now. It was 20-22 per cent a year back. In fact 70 per cent of the money - fresh or rebalanced from the existing portfolio - is getting invested in to equities.
Investors realise that the government will have to take tough measures which in the near term may look harsh, but in the long-run will be beneficial to the economy. In fact foreign investors are waiting to see such action, which will further boost confidence in the market.
Meanwhile foreign investors will be in for some sweet surprises and will react positively as there are strong expectation that the government will do away with retrospective tax and GAAR.
FIIs and corporate houses are cautiously waiting to see what the government does in administrative and policy reforms. Reducing bureaucratic red tape, focusing on increasing foreign direct investment (FDI) and improving infrastructure will be positive signals for investors.
For instance, environment clearance which used to take around six to eight months in 2007/08 is currently taking 30 to 32 months. Even administrative efficiency in quick environment clearance can bring back confidence among corporate houses and the markets.
Though not much is expected during Budget day, the market expects changes in labour and land laws in the Budget session of Parliament that starts from July 7 to August 14.
The week also marks the beginning of the corporate earnings season. IndusInd Bank and Infosys will declare their first quarter results on Wednesday and Friday, respectively. Besides, the government will also unveil industrial production data (IIP) for May 2014 on Friday.