“Remember not only to say the right thing in the right place, but far more difficult still, to leave unsaid the wrong thing at the tempting moment” – Benjamin Franklin
Budget is just ten days away. This will be the last budget before parliament goes into election next year. And as usual there are a lot of expectations as well as speculations about the budget. Looking at the past track record of this government and present world economic situation, we expect this budget to be a budget exploiting the opportunities, providing fiscal accommodation to attract investments into manufacturing and also increase productivity in agriculture sector with some tax concessions. Directly or indirectly this budget should influence employment and spending at lower level.
Russia Ukraine war has been running for almost a year now. And all supply socks it caused are factored in to a good extent. Winters in Europe will be over in another one and half months. Post that demand for energy in Europe will ease which will bring down its cost and impact inflation positively in those countries.
China has also started opening its country by lifting corona curbs. And its economy will be working back to its full capacity very soon. We think it will cause over supply of goods in the market and bring down the inflation. From Indian perspective inflation is already below the tolerance level of RBI for second consecutive month in December and should continue its trend till May/June when summer will affect agricultural output and may impact inflation.
RBI will also begin its policy meeting five days after budget on 6th February. Inflation now is well below the upper tolerance limit at 5.72% in December. We believe RBI doesn’t have good reasons to continue its aggressive stance. So it has to now ease the policy. We think interest rates have almost peaked and RBI doesn’t have much scope to increase it further. But don’t expect much respite soon.
Markets at the moment are trading around 22-23 PE and market cap to GDP ratio is also 103.4. Both these indicators signal towards market being on a little high side. But we feel the positivity of the budget will give a push to the market. On the debt side, investors should complete their bond portfolio for medium to long term now post RBI meeting.
Probably a bigger concern for your InvestmentMitra is political and economic situation across the border, which is more pronounced in Pakistan. Should that translate into any misadventure will definitely have a bearing on the markets and on the economy if it prolongs.
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