Budget key to continued stock market optimism

Last Updated: Thu, Feb 21, 2013 05:37 hrs

Stock investors are pinning hopes on some possible pro-business and market-friendly announcements in the upcoming Union Budget to keep the optimism on Dalal Street going. As some analysts forecast a deepening economic slowdown, investors are looking forward to measures in the Budget that could reverse the growth decline.

"Investors are extremely focused on the Budget and their thought process will be formed on the basis of the announcements in the event," said Ravi Iyer, senior executive director and co-head, Kotak Institutional Equities, at the broking firm's three-day Annual Global Investor Conference, which ended on Wednesday.

The Budget for 2013-14 will be presented before Parliament on February 28. Brokers said many foreign institutional investors could base their investment decisions in India after the Budget.

As expectations from the Budget are high, absence on any major policy decisions could "significantly disappoint" investors, said Iyer.

So far in 2013, foreign institutional investors have poured Rs 43,854.50 crore ($8.14 billion) into Indian equities. Last year, they net bought to the tune of $24 billion.

Analysts said market-friendly announcements in the Budget would be key to foreign investor inflows sustaining for the rest of the year as the government struggles to control its widening current account deficit.

Credit Suisse said on Tuesday, India's economic slowdown was deepening and widening. Earnings estimates of top Indian companies are falling as sales and operating profits of top 50 Indian companies have grown at the slowest pace since the economic crisis, the investment bank said in a client note.

The government's recent fiscal tightening measures and tighter monetary policy to tame inflation are weighing on economic growth. The Central Statistical Organisation has forecast India's gross domestic product to grow at five per cent this financial year.

"A tight fiscal and monetary policy together is suicidal for the economy and should be avoided," said Sandip Sabharwal, chief executive officer-portfolio management services of Mumbai-based broking firm Prabhudas Lilladher. Kotak's Iyer said if the Budget announcements fell in line with market expectations, foreign investors would shift their focus to the economy's growth prospects.

"There is still optimism about India after having lived through this slowdown. The mood among many participants (conference) has been upbeat," Iyer said.

He said the focus of investors would continue to remain on companies with good balance sheets and cash flows despite stretched stock valuations.

"Companies with superior fundamentals will continue to command a premium over others," he said.

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