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A cut in personal income taxes could also support the markets as this will give a filip to consumption (Photo: Mint)
A cut in personal income taxes could also support the markets as this will give a filip to consumption (Photo: Mint)

Great expectations ride on the budget

  • The markets are hoping that the government will revive the economy without straining its finances too hard in the upcoming Budget
  • The market wants the government to expand its balance sheet a wee bit to free up some resources to revive growth

As the all-important event is round the corner, the markets are hoping that the government revives the economy without straining its finances too hard in the upcoming budget. The market wants the government expand its balance sheet a wee bit to free up some resources to revive growth.

Weak economic growth and a high fiscal deficit are big challenges facing the government. The slowdown has meant that government revenues have left a hole in the government's finances. So whether in these circumstances, Nirmala Sitharaman loosens her purse strings and increases spending on infrastructure will be the key.

That apart, individual investors will be glued to see whether the budget eases taxes on long-term capital gains and provides other relief measures for the markets. A cut in personal income taxes could also support the markets as this will give a filip to consumption.

Finally, of course, the markets will benefit if the economic revival will be the focal point of this budget as it can translate into higher corporate profits in the coming quarters.

As it is, the market is not expecting much from the results season this quarter with net profit expected to increase by about 2-4% year-on-year, excluding the banks. And so far, much to the chagrin of investors, early bird results have been mixed.

Corporates such as Larsen and Toubro Ltd have been hit by the slow pace of capital expenditures both by the government and the private sector. International orders though made up for the lack of domestic growth. Besides, some verticals did not quite take off for Reliance Industries Ltd as expected.

The financial services sector is also not off to a flying start this earnings season. Banks were expected to do much of the heavy-lifting this quarter. A slowing loan book growth given the weak economic conditions are rising delinquencies have impacted their performance. In fact, the results of Axis Bank Ltd and Kotak Mahindra Bank Ltd underscores this point.

But some banks did surprise with good numbers such as ICICI Bank, which could have a positive effect on the markets when it opens on Monday.

Next week will also see some market heavyweights such as SBI Ltd, Maruti Ltd, HDFC Ltd, Tata Motors, ITC Ltd, HUL Ltd, Dr Reddy’s Laboratories Ltd declare their results. Besides, some of the automobile companies will also be declaring their monthly sales numbers, and any lacklustre sales here could impact the markets negatively.

On the international front, the markets will also look for cues from the Fed interest rate decision, which is expected on Wednesday. The market will be closely monitoring the commentary to see how much the US Fed will be accommodative in the coming year, and for cues on interest rate movements.

Last week, global markets were spooked on the news coming from the mainland that the coronavirus is spreading rapidly and death toll from those affected has risen. China has restricted the travel of its citizens to contain the spreading of the virus, though markets will be worried that it could impact economic activity in the region. Global markets will be watchful.


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