Union Budget 2009-10 lacked Fizz!

Union Budget 2009-10 can be termed as Rasna delivered in a Mirinda bottle. Functionally there are no problems with the Budget 2009-10, but it certainly didn’t meet the expectations that India Inc had with it. It simply lacked the expected Fizz!

Read the highlights of Union Budget 2009-10.

Union Budget 2009-10 The Macro-Economic Picture

The proposals put forth by the Finance Minister in his Union Budget 2009-10 speech were targeted to boost the macro-economic parameters of Indian Economy, keeping in view the target of 9% plus GDP growth.

Experts feel that the budget will leave enough cash in hands of common man which will fuel demand. You can calculate the impact of Union Budget 2009-10 – Income Tax Proposals on your pocket. Further, various social sector and infrastructure spending proposed in Union Budget 2009-10 will create a domestic demand for goods and services. In a time of Global Recession, fueling domestic demand is the only route to achieve the 9% targeted GDP growth.

But what puzzled many experts was absence of any clear direction on where the Government will raise the funding to finance the Fiscal Deficit.

Union Budget 2009-10 and the Stock Market

Union Budget 2009-10 though ignored Stock Markets. The market was expecting a 3D budget (i.e. a budget that will propose Disinvestment, Decontrol and Deregulation) however the Budget 2009 surprisingly didn’t give any clear road map on any of these factors. This made the budget look flat.

In our previous article, Stock Markets awaiting Union Budget 2009 in which Personal Money had analyzed the performance of Sensex on budget day since the year 2000. We had anticipated a highly volatile session during the run-up to the budget and also on the Budget day, today. However, to be frank we didn’t expected such a strong negative swing on Sensex.

Union Budget Day	Change in Sensex	% Change	Intraday Swing	% Swing
29/02/2000	-293.22	-5.11%	519.88	9.06%
28/02/2001	177.36	4.36%	207.62	5.10%
28/02/2002	-143.35	-3.87%	194.09	5.24%
28/02/2003	6.32	0.19%	46.94	1.43%
08/07/2004	-112.13	-2.26%	195.54	3.95%
28/02/2005	144.14	2.19%	175	2.66%
28/02/2006	88.15	0.86%	216.59	2.11%
28/02/2007	-540.74	-4.01%	497.61	3.69%
29/02/2008	-245.76	-1.38%	521.34	2.92%
06/07/2009	-869.65	-5.83%	1138.43	7.63%

The Sensex ranged between 15097.87 to 13959.44 points, a swing of around 1138.43 points which amounts to a whooping 7.63% with respect to the previous close of Sensex. This was the largest fall in Sensex on the Budget in absolute and percentage terms that we have seen in last ten budget day trades. It was the second worst Budget considering the volatility factor in last ten year.

The first strong negative signal from the Union Budget 2009-10 came when the Finance Minister announced the 6.8% fiscal deficit. This led to the collapse in the Debt Market mainly due to the concerns of no clear direction of funding the fiscal deficit. Interest rate and inflation concerns further compounded the collapse. This in turn affected the performance of Stock Markets.

No mention of the expected increase in the FDI Limit in Insurance and Retail, auctioning of telecom spectrum, no clear road map on disinvestment further depressed the stock markets. Many experts feel that it is not what the Finance Minister said, but, what he did not say impacted the markets. Well, agreed, the budget is not exactly the document to chalk out such measures, but the markets were expecting an overall direction on these policy issues. Complete absence of such announcements turned the sentiment in the Stock Market hugely negative.

However, Finance Minister did say that one budget can not solve all our problems. Further, not all proposal can be a part of Budget Document. We will have to wait and watch if the Finance Minister walks-the-talk by providing much needed reforms in form of the 3D (Disinvestment, Decontrol and Deregulation) announcements post budget or in the next Union Budget 2010-2011 expected in less than eight months from now.

Conclusion

The Stock Market was up by almost 25% since the UPA Government came to power with a clear majority. There were sky high hopes from the Budget. As anticipated by Personal Money in an earlier article that when expectations  are high, the delivery is under par! The Budget 2009-10 proved to be just that.

For retail investors, this can be a good sign, the knee-jerk reaction of the stock market has provided an excellent opportunity for them to take positions in quality stocks from sectors such as Banking, Infrastructure, etc at cheaper rate. After all, Rasna is also a refreshing drink, so what if it lacked fizz!!!