For Quick Alerts
For Daily Alerts

Why are markets sulking after the Union Budget?


 Why are markets sulking after the Union Budget?
The Union Budget 2013 has been touted as a politically right budget, which is also not economically wrong. Industrialists more or less gave a thumbs-up to the Budget and why not? If you escape additional corporate tax, excise duty and VAT burden, you are likely to say good things about the Budget.

Indian stocks markets are sulking though and they always reflect broad investor sentiment. The Nifty crashed almost 2 per cent yesterday and is likely to open lower again today.

Here are a few reasons why economists and investors are not happy.

Budget lacks credibility on the fiscal deficit front

Investors feel that the fiscal deficit target of 4.8 per cent of GDP for 2013-2014 will most likely go awry. With the passage of the Food Security Bill, the food subsidy is likely to bloat and in one year India has general elections. In all probability analysts feel that the government reforms will stall and it may even go to the extent of preventing a systematic increase in diesel prices every month to please the electorate. More goodies are likely to be doled out for voters, keeping in mind next year's general elections. Against this backdrop, it's almost impossible for the fiscal deficit to be reigned in at 4.8 per cent of GDP for 2013-2014.

Ballooning Current account deficit

The one concern that Finance Minister P Chidambaram mentioned at the start of his Budget speech was the concern over the ballooning current account deficit. RBI Governor Rangarajan, too, last month was rather vocal when it came to talking of the current account deficit.

At 5.4 per cent of GDP, the current account deficit is at a historic high. If it continues to stay the way it is, the rupee is likely to go into a tailspin sooner than later. Chidambaram hardly spoke on ways to contain the current account deficit, though he spoke on concerns of the same. In fact, one reason why the current account deficit is surging is because of rising gold imports, for which the Budget did little to curb.


Rising inflation, particularly CPI

The Consumer Price Index inflation is in double digits. How the government is going to control rising prices, especially of food items is not clear. Unless, it elevates supply side risk to inflation the RBI is not going to act on reducing interest rates. This means that economic growth rates, which touched a low of 4.5 per cent for the December quarter, will continue to languish.

Savings rating decline unlikely to kick start investments

The domestic saving rate was at a high of 36.9% in FY 2008, but since then has continuously plummeted to the current levels of 30.8 per cent of GDP. High inflation is eating into household savings and if the same is not addressed, it's likely that the investment cycle will never take-off, because there is no savings to channel it into investments.

Clearly, the Budget has been neutral for the markets, but, FIIs sold heavily on the budget day and their net selling was in excess of Rs 1200 crores. It's likely that the markets would continue to sulk as Chidambaram's Budget has belied expectations.

Read more about: union budget 2013
Company Search
Get Instant News Updates
Notification Settings X
Time Settings
Clear Notification X
Do you want to clear all the notifications from your inbox?
Settings X