Budget Analysis: Not a cheerful Budget: Dalton Capital

UR Bhat, MD, Dalton Capital Advisors, shared his view on the Budget.

Below is the edited transcript of his interview to CNBC-TV18. Q: What would you expect the market to do from hereon given the initial reaction we have seen to the Budget?
A: The Budget was not remarkable by any stretch of imagination. I think the market will now start reacting to news as it was till yesterday. Basically, international cues about potential flows have been running the market, because FII flows were running the market and the view on that is based on changing situations in international markets. That is what the market will go down to from tomorrow. Q: Earlier we were talking about 5800 being the floor if the Budget was reasonable. Has that hypothesis gone out of the window?
A: Yes, it has. Budget is less than reasonable as the market indicates. There were two big expectations. First, reviving the investment cycle and second, working on current account deficit (CAD) or the savings and investments gap. As far as reviving the investment cycle is concerned, nothing much really has been done except some small investment allocations that have been given for large projects. As far as bridging the savings and investments gap is concerned for long-term savings, nothing much has been done and the Securities Transaction Tax (STT) cut in Futures is really not towards a long-term savings to be channeled to the markets or to investment.
So both these issues which needed to be addressed or at least the market expected to be address were hardly been addressed in the Budget. There is almost 29 percent surge in spending as far as planned revenue expenditure is concerned with largely sort of social schemes. So the quality of the deficit itself has come down, because it is not really on account of investment in the productive capacity, but rather indoors. So I think therefore this is reflected in the market and therefore 5800 floor that was talked about earlier may not hold post the Budget.