  | | July 11, 2014 | | | | | | | Weekly Facts | | | Close | Change | %Change | | BSE Sensex* | 25,024.35 | -937.71 | -3.61% | | Re/US$ | 60.2 | -0.46 | -0.77% | | Gold Rs/10g | 28,640.00 | 570 | 2.03% | | Crude ($/barrel) | 108.67 | -1.58 | -1.43% | | FD Rates (1-Yr) | 8.00% - 9.00% | Weekly change as on July 11, 2014
*BSE Sensex as on July 10, 2014 | |
Impact 
Against the backdrop of heightened expectations, the budget 2014-15 turned out to be ordinary, though it may not be termed as disappointing. The NDA Government continued with some of the UPA initiatives. Having said this, budget 2014-15 does not any dark undertone of populism. The Finance Minister (FM), Mr Arun Jaitley announced a massive cut of about 33% in the total budget support for the central plan over revised estimates of 2013-14. There has been a massive reduction in Centrally Sponsored Schemes (CSS) from 126 to 66. But, the total expenditure is expected to go up by about 8% over last year budgeted figure and about 12.9% over the revised figure for last fiscal. Defence has been given greater outlay of about 12.4% over revised estimates of 2013-14. The Government is committed to spend prudently on agriculture, women empowerment and rural development.
As far as the tax revenue is concerned, the Government has set rather a moderate target of 10.41% growth as against the growth in budgeted tax revenue for last fiscal year. But when compared against the revised tax revenue target of about Rs 11.60 lakh crore in 2013-14, this year's target looks quite ambitious at about 17% (of revised estimates for 2013-14).
Plan expenditure is expected to go up by about 22% over revised estimates of Rs 3.71 lakh crore for the year 2013-14. Total subsidy bill is expected to go up by about 2.0% from the revised estimates of last fiscal. . Grants to State Governments and Union Territories would go up by about 13.5% in 2014-15. Despite of this, FM has re-assured that fiscal deficit target of 4.1% (set by his predecessor) would be met.
The budget focuses on solving the industry specific issues by announcing some special provision and budgetary support. At the same time, it has tried to facilitate flow of capital in sectors which have funding requirements.
Some of the other noteworthy announcements are:
- Relaxation of Foreign Direct Investment (FDI) norms in Defence, Insurance and construction which may boost investments in these sectors
- Big push to infrastructure, with a major allocations to roadways
- Expanding gas grid
- Improving urban transportation
- Developing 7 new industrial cities
- Developing 6 textile clusters (with a budgetary allocation of Rs 200 crore)
- Development of new ports aided by greater budgetary support
- Special provisions for power sector revival, including extension of tax holidays till March 2017
- Budgetary support to renewable energy with allocation of Rs 1,000 crore to 'high priority' sector
- Special emphasis on security of women
- Announcement of national multi-skill programme, called Skill India to develop skills of youth with focus on employability and entrepreneurship
- Promotion of entrepreneurial skills by setting up Rs 10,000 crore venture fund to act as a catalyst to attract private capital
- 5 new IIMs and IITs
- Announcement of the launch of pan India programme "Digital India" to ensure broadband connectivity at village level. A National Rural Internet and Technology Mission for services in villages and schools, training in IT skills and E-Kranti for Government service delivery and governance scheme is also proposed (through an allocation of Rs 500 crore)
- Emphasis on creating jobs
Moreover, providing some relief to the common man who who voted the Modi-led-NDA Government to power by a thumping majority, the basic exemption limits for individual tax payers below 60 years of age and senior citizens (i.e. over 60 years of age) was increased by Rs 50,000 each. Also deduction limit under section 80C of the Income Tax Act, 1961 was increased to Rs 1.5lakh. Likewise as housing continues to be an area of concern for middle and lower-middle class family due to high cost of financing (due to an elevated interest rate scenario) and rise in property prices, he deduction limit available under section 24(b) of the Income Tax Act, 1961 in respect of Self Occupied Property (SOP) was increased to Rs 2 lakh.
PersonalFN is of the view that, while the budget 2014-15 does not have dark undertones of populism, it is tight rope walk in path of fiscal consolidation. While in some areas the allocations seem obscure, in the area of building robust infrastructure, it is substantial. So, it seems an 'okay' budget for Modi-led-NDA Government to begin with.
The Government has continued with many of initiatives taken by the UPA Government. Adhering to the theme of "minimum government and maximum governance", the Government has taken a number of steps, chief of them are:
- Winding down Centrally Sponsored Schemes and targeting improved monitoring
- To strengthen Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGS) without making very high budgetary allocations
- Without cutting subsidies, bringing changes in grants for food and petroleum subsidies to make them more directed
So, the first budget of the NDA Government gives clarity about intent of the Government.
But PersonalFN is of the view that, containing fiscal deficit may be a tough task for the finance minister. Within first quarter of this fiscal, the deficit has shot up to nearly 55% of the whole year target. On the day of budget, amidst high volatility equity markets didn't lose much of a ground. The same is true with bond yields which didn't show any huge change over their previous close. Nevertheless now the markets are looking forward for the implementation of announcements made in the budget. PersonalFN would also closely monitor the implementation and inform you time to time.
Was that the kind of budget you expected from the NDA Government? Share your views
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Impact
Containing inflation and reviving growth have been two major challenges before the newly elected NDA Government. The Budget 2014-15 was the crucial test for the Government. The budget gives ample clues for making some judgment about what response we can expect from the Government on these two important issues.
Budget 2014-15 has made huge allocations to infrastructure and has sought some structural changes to make increase the efficiency of Indian agriculture.
The Budget has put a special thrust on development of agriculture sector.
- Proposal to finance 5 lakh landless farmers through National Bank for Agriculture and Rural Development (NABARD)
- Rs 5,000 allocated for refinancing Cooperative Banks and Regional Rural Bank under "Long Term Rural Credit Fund"
- No rollback of interest subvention schemes for farmers
- Incentive of 3% to farmers for timely repayment of loans
- Rs 5,000 crore allocated through Rural Infrastructure Development Fund (RIDF) in addition to the allocation made in the interim budget
- Additional fund of Rs 5,000 crore is given for development of warehousing capacity
- Long term rural credit facility is made available through NABARD
- Setting up of farmer markets in rural areas
- Aid of Rs 1,000 crore to be provided under "Pradhan Mantri Krishi Sinchayee Yojna"
- Formulation of New Urea Policy
- Restructuring of Food Corporation India (FCI)
- Setting up of two new agriculture research institutes
- Setting up of two new agriculture and horticulture universities
- Technologically driven second green revolution is envisaged
- Setting up of "National Adaptation Fund" with an initial contribution of Rs 100 crore
- Rs 500 crore to be given as price stabilisation fund
The budget has also given a good roadmap to infrastructure development some of the key aspects include:
- Target of building 8,500 km of national highways in 2014-15
- Total plan outlay for road sector at Rs 37,881 (massively up by 13.5%)
- Re-shifting focus on Public Private Partnership (3P India) by making provision of Rs 500 crore
- Awarding within a year projects for building 16 major ports which may attract private investment of around Rs 80,000 crore
- Visionary step to develop an inland waterway project on Ganga under National Waterways-I
- Focus on developing and modernizing airports in tier 1 and tier 2 cities
- Allocation of Rs 7060 crore for developing 100 smart cities
- Rs 8,000 crore to be awarded for rural housing through national housing bank
- Urban infrastructure gets a support of Rs 50,000 crore
- To add gas grid of 15,000km in a phased manner
- Rs 100 crore set aside for setting up National Industrial Corridor Authority
- 20 new industrial clusters proposed on Bengaluru Mumbai Economic Corridor and Vizag-Chennai Corridor
PersonalFN is of the view that, with the aforementioned steps and substantial allocation thereto, the budget has given fair emphasis to the concerns of inflation and growth. But given the challenge of a possible drought (with monsoon thus far been 43% deficient as per the Indian Meteorological Department) and geopolitical tensions, risk to inflation is imminent. Likewise for economic growth, indeed vide development of better infrastructure better economic growth can be expected; with inflation remaining high along with interest rates remaining elevated along with global economic headwinds (now once again news disseminating from the Euro zone), the country's GDP may not clock 5.4% - 5.9% growth rate as envisaged in the economic survey.
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Impact
After generating poor returns for nearly 3 years from November 2010 to August 2013, the Indian equity market started rallying September onwards. Mr. Narendra Modi was nominated as the prime ministerial candidate in September by the Bharatiya Janata Party (BJP). On formation of a stable Government, rally got extended in May. Many experts believe it is not just the knee-jerk reaction of the market but the beginning of a new bull market. It has been more than 200 days since the rally began in September 2013. Although markets touched all time high and crossed the 26,000 levels on S&P BSE Sensex, the move has been slower than that experienced in first 200 days of the bull phase in 2009.
How much you would have earned in first 200 days of bull phases?
Data as on July 07, 2014
(Source: ACE MF, PersonalFN Research)
Note: Bull phase of 2013-14 is still under progress
To read more about this new and the views of PersonalFN's over it, please click here.
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Impact
As the markets are scaling new highs, investors are evincing interest at the market top. Even fund managers are setting upward targets for the equity market rather astoundingly and they all seem to be getting in rat's race, one following the other. Today, the reach of mutual funds is mainly restricted to top 15 cities, as fund houses recognise where the appetite for equity investing lies. But what they forget is, to wisely educate investors, which in turn would help their Assets Under Management (AUM) grow as more people will invest and stay invested in mutual funds.
Now that market sentiment is bullish, many experts including fund managers are giving upside targets. Some of them see S&P BSE Sensex hitting a 31,000 mark by March 2015. In June, mutual funds bought equities a little over Rs 3,300 crore - the highest monthly net purchases since June 2008 - as they are exuding much hope of growth and fiscal discipline in the ensuing full year budget (which will be presented on July 10, 2014).
To read more about this news and the view of PersonalFN over it, please click here.
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- Banking penetration in India is very low. More than half of the country's population doesn't have a bank account. It seems bureaucrats have come up with an innovative idea to help such people avail banking services. On Independence day this year, people who do not have the bank account would be offered Rs 5,000 as overdraft facility to open an account with a bank. As a part of the comprehensive scheme for financial inclusion, Sampoorna Viteeyea Samveshan (SVS), Government may promote banking services to unbanked population.
Furthermore, the Government has planned to keep aside a credit guarantee fund of Rs 1,000 crore to provide safety margins to lenders who are risk averse. However, all this comes with a condition that, a person availing for such a facility has to compulsorily participate in financial literacy programmes run by the lenders.
PersonalFN is of the view that, this may not be indeed a prudent way of financial inclusion. As it may spoil people, especially those in rural areas, who do not know how to deal with credit / debt.
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Tax Holiday: A government incentive program that offers a tax reduction or elimination to businesses. Tax holidays are often used to reduce sales taxes by local governments, but they are also commonly used by governments in developing countries to help stimulate foreign investment.
(Source: Investopedia)
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Quote : "Bull-markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria." - Sir John Templeton
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