Budget Musings Part - 1

This Budget could have been a historic and landmark budget for India but sadly it has become just another event. Although, I knew that the budget will be a non event but somewhere in my heart I was hoping that FM will do something magical and India will make a Big Leap forward. Anyways, whatever fall you are seeing in our stock markets is due to Global Factors and FM should not be held responsible for it.

It seems that in order to bring inflation under control FM has become over conscious and took some anti inflationary measures which may boomerang causing further rise in inflation. He knows it better that every hike in excise duty is passed on to the costumer/consumer by the industry and the same has happened with cement. FM hiked the excise duty on cement sold at the rate of Rs. 190.00 per 50 Kg. and above by 50%, as a result cement manufacturers hiked the prices. Now, cost of every builder increases and they pass it to customers therefore “Home” which is already dearer due to higher interest rates becomes more costly. It is like Chaos Theory – “the flapping of a butterfly's wings in one area of the world can cause a tornado in another”

Well, FM says that he wants to punish those who sell costly cement by hiking price every now and then. Question : Why do cement producers hike price? Because there is demand greater than they can fulfill. Cement manufacturers are businessmen and they have also seen lean seasons. What did FMs do to help them during the period of recession? India lacks in infrastructure in the form of ports and roads and public transportation and airports and what not? So, a lot of cement and steel are required to develop world class infrastructure. And, if there is demand for cement and manufacturers are happy, why punish them. Instead, help them to increase their capacity and if you can’t do that, incorporate a Cement PSU mammoth and give subsidies through it and let it bleed to death sparing private sector manufacturers.

I am still wondering whether hiking the excise duty is an anti inflationary measure or reducing it. If you hike it on cement, why reduce it on Petrol & diesel.

.......to be continued

Budget - Just Another Event

It's that time of the year, again, when the markets become jittery and retail investors are at the receiving end. Yes, it's The Budget time folks and investors are counting days with bated breath as to what will the Finance Minster do this time. With every statement of the FM, markets will swing wildly on the D-Day, so be very very cautious and avoid short term trades for the time being. Believe me its better to avoid losses than to miss opportunities.

For long term investors, there is no need to worry if they have invested in quality stocks with good management. A good management makes all the difference, because they are versatile and can adapt to the new situations if budget brings any major changes. Historically we all know that markets fall after Budget, barring a few instances, but it will always bounce back.

Budgets come and Budgets go, but if you are investing in India story then you are bound to make profit because no government is stupid enough to do something drastically wrong and stall India's progress. I am also relieved that both Prime Minister and Finance Minister are learned persons who, in true sense, started the Indian Juggernaut rolling in Global Arena.

Now, if FM takes same strict measures to curb inflation by hiking CRR or reducing petrol & diesel prices than what’s wrong in it? Rising inflation is a part of booming economy, somehow, because a good economy shows growth across all sectors alongwith growth in GDP and people have more money to spend which increases the purchasing power and demand-supply gap widens in favour of demand. As a result prices of commodities start to move upward which in turn make Wholesale Price Index to rise and ultimately Inflation figures dampen the sentiments of the markets. So, as far as FM is concerned about rising inflation, you need not worry.

Similar is the story of Bank Interest Rates. A large number of companies have already issued FCCB’s and raised loans at a very low interest rate. Even if they need money now, it is available cheap globally compared to India. Yes, it will hurt entrepreneurs, small & mid size companies and those who are seeking home loans. But don’t you think it is necessary to put a check on the prices of Real Estate and maintain the demand-supply ratio of commodities. If money is available cheap, everyone will expand their capacity in order to do more business which will result in oversupply and we will drift towards recession. Actually this is a Business Cycle of every economy, which cannot be avoided, but we can try to postpone recession as far as possible.

Moral of the story : Don’t worry about good or bad budget. Just keep an eye on demand-supply ratio across all the sectors (I know it is very difficult) and start worrying when you think we are entering into a long period of recession.