Friday, February 29, 2008

Indian Union Budget 2008 & beyond

The Indian equity markets ended in the red, in line with the weakness across global markets.
As far as the stock markets are concerned the Union Budget was neutral overall, and did nothing to further reforms in the run up to the upcoming elections.

Some Highlights
The Fiscal deficit = 3.1% in FY08, revenue deficit = 1.4%
Ahead of the upcoming elections, the finance minister reiterated the need for ‘inclusive’ growth, reduced excise duty on small cars and announced higher spending on education and a Rs. 60,000 Cr loan waiver/relief for farmers.
Short term capital gains tax has been raised from 10% to 15%, and the threshold limit for all IT assesses has been increased from Rs.110,000 to Rs.150,000.

2008 is going to be a difficult year for global stock markets. Here’s what we are up against:

Stagflation in the US : Slow growth, rising unemployment & inflation.
The rapidly declining USD, eroding the value of Forex Reserves of Central Banks.

An increased likelihood of a hard landing for the US economy.
The "Goldilocks economy theory" and the Decoupling theory are dead.
Weakening US Consumer consumption.
US Home prices continue to decline.
The global credit crunch continues.
Eventual downgrading of the US Bond Insurers. More trouble at Freddie Mac & Fannie Mae.
The Fed focusing on growth and Wall Street, and not inflation.
Food grain and oil prices at record highs.
Fears of writedowns in the Global Banking industry in the first quarter 2008.
Slowdown in foreign institutional fund flows to emerging markets.

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