Government may hike indirect tax rates like excise duty and service tax: D Kannan, MD, Kotak Securities
March, 03rd 2012
D Kannan, Managing Director, Kotak Securities
The FM will focus on the fiscal deficit, which has risen sharply for 2011-12. While higher allocations in the budget towards infrastructure, social initiatives and agriculture, are expected, increase in indirect tax rates like excise duty and service tax are also likely. Issues related to supply side bottlenecks and speedier implementation of the allocated budget are also likely to be addressed.
Also Check: Budget 2012 at ET | Union Budget | Rail Budget 2012 | Budget News
There are several reform initiatives which the Government has initiated outside the budget. And this budget is likely to take some of them ahead like FDI in multi-brand retail, Companies Bill, Competition Bill, Mining Bill, Banking Regulation Act and Power sector reforms among others. A show of intent on these counts could potentially feed a strong positive sentiment to the market.
"The month of February has been an exciting one with the Indian markets largely sustaining the momentum gathered in January. Keeping the sentiment alive were the positive global cues and anticipation of further liquidity flows due to the easing in Europe. In India, the expectations of a softer interest rate regime helped sustain the momentum. However, the rally was snapped by rising oil prices, a lower-than-expected 3Q GDP number and likely risk aversion at higher market levels.
Moderate interest rates in FY13 and the optimism around the government earnestly taking up the reform agenda, make the medium-to-long term prospects of the market looks positive.
However, one must be careful about a few road blocks ahead. The state election results have to be favourable from the Government's perspective or else the optimism on reforms could wane. Moreover, the crude prices have to be watched closely as sustained high prices may lead to a deferment in rate cuts. These factors may lead to a pullback for the markets in the intermediate term. Developments in US and Eurozone also need to be watched closely as they drive the FII flows.
Overall, valuations have moved up from the lower end of the long-term range for the benchmark indices and one could use dips to accumulate stocks of companies having strong managements and balance sheets.