Graphic: Yogesh Kumar / Mint

Graphic: Yogesh Kumar / Mint

Rapid Fire | Small rollback has been priced in; more than that will be a surprise

Rapid Fire | Small rollback has been priced in; more than that will be a surprise

Mumbai: In six days from now, finance minister Pranab Mukherjee will present the Union Budget for 2010-11, at a time when the equity markets are increasingly volatile. Mint spoke to Nirmal Jain, chairman of India Infoline Ltd, the largest listed local brokerage, to find what the equity markets are expecting from the Budget. Edited excerpts:

The market has slowly been losing enthusiasm about the Budget.

Graphic: Yogesh Kumar / Mint

Yes, that’s a fact. The market is not enthusiastic about the Budget. The Budget has become less relevant from the policy point of view or the direction of reforms or the markets point of view. If you go a few years back, the government announced all major policy changes and reforms in the Budget. Now they are announced throughout the year and sometimes very close to the Budget.

Over the last three-four years, it’s not been easy to take a direction after the Budget. The immediate reaction has been different over what has happened later. But more or less the Budget is predictable, unless there is a big surprise. The market is not waiting for the Budget with much of excitement.

Also Read previous interviews in the Rapid Fire series

Also See Mint’s complete coverage of Budget 2010

But even then, there must be some kind of expectation about the Budget. What are you looking forward to?

The new direct tax code and tax reforms have come as positive steps. But unfortunately it seems that the timeline will get extended and nothing much will happen. If you look at the tax laws, you can simplify them and make them much better. The tax code can be simplified. Similarly, the move towards GST (goods and services tax) is positive. These are underlying macro changes that are required to make our tax system more efficient and more compliant from people’s point of view.

If you want to do something about it (reforms), it still can be done. Like simpler taxes and doing away with a number of taxes such as FBT (fringe benefit tax), STT (securities transaction tax), etc.

The other part is that people are expecting a partial rollback (of the fiscal stimulus) in excise (tax hike). I don’t think the finance minister—in this environment—will have the courage to disturb it in a big way.

Is the rollback of the fiscal stimulus priced in, or can it still spook the market on Budget day?

What has been priced in is a very small rollback. Like a 2% (increase in excise tax) kind of a thing. If it is more than that, it will be a bit of a negative surprise. But I think it is unlikely.

But markets have been volatile in the last month or so now. Is it because of the Budget?

Yes, markets have been more volatile, but they have been governed more by global cues than by Budget expectations or domestic events. Indian markets, in a way, have decoupled. If you look at the last one year, our markets have given returns of almost 100%, whereas if you look at, say, the US markets, they haven’t given similar kind of returns. From that perspective they have decoupled.

But still, on a major (global) event or major jitters (the local markets will move.) The pace and quantum of change will be different, but the direction will still continue to be driven by global markets.

What is your sense of where the markets will end this year?

I think markets from here till the year-end can give 15-20% returns, unless something unforeseen happens.