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Wednesday, February 24, 2016

Will the Budget be a non-event this year? - a guest post

As Q3 results season comes to an end in February every year, business newspapers, their online counterparts and TV channels try to build up a feverish hype around the annual budget.

It is a mad rush to grab readership and viewership, with experts of all shapes and sizes expounding their views about the kind of proposals the Finance Minister should or should not announce.

In this month's guest post, Nishit mentions some of the important factors that are affecting the economy and the stock market, which may turn the budget into a non-event this year. 

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It is time for the annual ritual of the Union Budget. Every year the Budget is hyped up to be the magic wand that solves all the fiscal problems of the country. This time things are a bit different. Global headwinds are ensuring that there is not much optimism among market players.

Domestically, the passage of the key reform bill of GST will outweigh anything which the Budget has to offer. If the GST bill does not go through, the market will continue its journey downwards. If the GST bill gets passed, the Nifty may well rally by 1000 points.

There are calls for the Finance Minister to avoid further fiscal consolidation and the deficit target of 3.9% of GDP with more spending to stimulate the Indian economy. The danger of doing that is FIIs may increase their selling.

The second factor that is hampering the markets in India is the selling by Sovereign Funds of the oil producing countries. All these years, they had pumped in money as investments from their surplus earnings due to high oil prices. Now they are liquidating their investments.

The third factor is the Banking Sector NPAs. With the Reserve Bank cracking the whip, it is time for the Banking Sector to feel the pain. 'Crony capitalism' of several decades is getting exposed. The Banking and Finance Sector constitutes almost 30% of major Indices.

With all these extraordinary factors, the Budget has been reduced to a non-event this year. Unless the Finance Minister pulls out some rabbit out of his hat, we are going to see the stock market stuck in a range.

The most likely outcome of the Budget is a further increase in Service Tax from 14.5% to 16%, which is close to the expected GST rate, and also some exemptions for the Individual Tax payer. Nothing more and nothing less.

GST is the game changer and if the Government manages to push it through then it would give a major sentiment boost to the market, else status quo will continue till India Inc start reporting better earnings.

These are the some of the reasons why there has not been a pre-budget rally this year.

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(Nishit Vadhavkar is a Quality Manager working at an IT MNC. Deciphering economics, equity markets and piercing the jargon to make it understandable to all is his passion. "We work hard for our money, our money should work even harder for us" is his motto.

Nishit blogs at Money ManthanYou can reach him at nish.stockid@gmail.com)

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