A single Budget speech cannot solve all our problems, said
the Finance Minister Mr. Pranab Mukherjee as he began his speech today. And what
he delivered (or didnt) was exactly what he said at the start. His budget for 2009-10
is now being seen as a non-event given that the speech did not include much about
the four key topics the markets were awaiting with bated breath divestment, FDI,
fuel policy and corporate taxes.
But then, as the FM concluded
his above statement, nor is the Union Budget the only instrument to do so, one
would not be wrong in expecting that he(the FM) and his team will follow up this
Budget with measures aimed to get India back on track to improved growth over the
next few years.
But for now, the markets
do not seem to be happy as seen from the 770 points crash that the BSE-Sensex has
seen by the time of writing this. What has seemingly done them in is the FMs no-stance
on the key topics as mentioned above, as also the grim forecasts of the fiscal deficit
that is expected to touch 6.8% of GDP in FY10, as compared to 6.2% as per provisional
accounts of FY09. This level of deficit is a matter of serious concern though the
FM did not talk about any real measure to reduce the same going forward.
Coming to the specifics
of the Budget, while there were a whole lot of doles and grants for social sectors
(and deservedly so), the scale of the same with no real announcement of a major
revenue collection exercise really caught us by surprise. The finance minister also
pricked some nerves by not reducing the corporate tax rate and also hiking the minimum
alternate tax (MAT) from 10% to 15%.
Among key sector policies,
while the budget had no real message for oil pricing, there were some scattered
announcements that dealt with the governments initiatives towards improving the
quality of infrastructure in both urban and rural areas. Also, while healthcare
received some attention, there were no real pronouncements on the education front.
The FM also made an attempt
at giving some relief to the individual taxpayer by increasing the exemption limit
in personal income tax from Rs 150,000 to Rs 160,000 for all categories of individual
taxpayers except women and senior citizens. For women taxpayers, the exemption limit
in personal income tax has been raised from Rs 180,000 to Rs 190,000. As for senior
citizens, the limit stands raised to Rs 240,000, from Rs 225,000 earlier.
All in all, the FM focused
a lot on the social sectors and the aam aadmi while giving a cold shoulder to
corporate India, and therefore the stockmarkets.
But we at Equitymaster
arent complaining at all!
There is no real change
in our view on stocks post the Budget announcements today. While speculators and
traders might feel the pinch of todays crash that seems more like a knee-jerk reaction,
long term investors need not worry at all except for a caveat that the governments
rising deficit might mean higher inflation and interest rate in the medium term.
We are firmly of the
belief that stocks should be bought based on a dependable assessment of their intrinsic
values. And todays budget does very little to change them from a long-term perspective.
Thus, when intrinsic values of fundamentally sound companies do not change but their
stock prices come off by 10%-12%, there is only thing that an investor should do.
And that is to take advantage
of the irrationality that is prevalent. After all, as Warren Buffett would testify,
great investment opportunities come around when excellent companies are surrounded
by unusual circumstances that cause stocks to be misappraised.
So, by not delivering
what the markets wanted, the FM has delivered you the long term investor a
chance to pick quality stocks at beaten down valuations. You wont let this opportunity
go. Will you?
After all, as the FM
said, A single Budget speech cannot solve all our problems nor is the Union Budget
the only instrument to do so. So why despair? Continue to invest carefully and
with discipline and you wouldve done your work well.
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