FII investment in mutual bonds, a bullish factor !

The Sensex rose, when the FM announced that FII investment is welcome in Mutual Funds. This will pave the way for billions coming in to the mutual funds sector.

The Sensex rose 623 points yesterday, an inordinate rise. Experts feel that more dollars will find its way into the Indian stock market.

The Budget was said to be populist, but it will not hurt Industry. It comforts the middle class man ( IT limit increased to 1.8 lk ) and Industry.

On the whole, an industry friendly budget and the initial euphoria has led to the inordinate rise of the Sensex !

The FM has done a balancing act, he has to please both Industry and the Common Man.

Ridham Desai, the MD, Morgan Stanley India, said that the move to allow global investors in mutual funds is very positive. Another positive factor is the infra spending of 27% more. He expects a positive impact of 50-60 bps on earnings. He expects the markets, Sensex and Nifty, to perk up by a furthur 20%.

"I think the budget was okay, there was nothing bad in the budget. I guess market expectations were a little bit on the lower side. So, I think there is a sigh of relief that there is nothing untoward in the budget.

I think he has done a decent balancing act. There were a lot of constituencies to serve. I think there is a bit of skepticism on the numbers, maybe the revenue side is a tad aggressive and on the subsidy side, he has been maybe a little bit too aggressive on the downside. So, maybe eventually he is going to have a tough fight on his hand to meet these numbers.

But apart from that, I think there were a few positive takeaways, which the market I don’t think has immediately paid attention to, I don’t see a lot of investors have paid attention to it. This whole thing about the Nandan Nilekani Committee is a very positive signal. The move to allow foreign individuals to invest in domestic mutual funds is positive.

I think there is a fair bit of infrastructure. If we look at the split of expenditure, he is budgeting for a 27% increase in infrastructure spending. Now, in a budget where overall spending is rising 3.5%, that is a huge skew towards a particular sector in terms of spending. Ofcourse the skeptics will come back and say but he didn’t do it last year, he had spending increased last year and he underdelivered. But the fact is that he has chosen to discriminate all his spending basket. He has picked out infrastructure for his spending, which I think is the key area where we need the spending.

So, he is doing the right things. Now, it is all down to execution. It is easy to stand up now and say, “They will not execute and be skeptical about it.” I think the other way of looking at it, which is my way of looking at it, is we will see we will wait and watch and give them the benefit of doubt right now and come back late to check whether the executions have happened or not. So, I am reasonably okay with the budget. I think it is pretty okay for the market."

"The market interest rates, to me, at various levels look like we are almost done. The only caveat here is what happens to oil. In 2008, when oil went up, we responded with the very sharp increase in rates. If oil does go up to USD 130-140 per barrel then that may have some implication on short-term rates. Otherwise, I think deposit rates we are mostly done, lending rates may go up a little bit. The RBI definitely needs to move a little bit maybe another 75-100 bps over the next nine-twelve months, but not a lot left on short rates. I think we are dealing with almost peak rates across various market interest rates."

We had said in our columns that India is running a good time, astrologically. Jupiter in the 9th and Saturn in the 3rd are both favourable. Period wise, India is running Sun Dasa/ Rahu Bhukthi. The ICTT Terminal at Vallarpadam became operational during this phase. Vibrant Gujarat mopped up 450 billion during this time. The Sensex is going up, thanks to the govt allowing global investors to invest in the mutual funds sector. Bullish news will come in during favourable times and during unfavourable times, bearish news ! The markets normally go down after budgets. But this time, due to the pragmatism of the FM, it is otherwise !