In line with expectatations: S Nagnath

UNION BUDGET 2005-06: COMMENTS

The Budget for the fiscal year 2005-2006 was positive and in line with expectations. The emphasis on agriculture and rural development, with a particular focus on rural infrastructure, job creation and education, is laudable.

Building up rural infrastructure over time contributes to more stable agricultural growth, thus gradually reducing the volatility in overall GDP growth that arises from swings in agricultural growth.

Focusing on infrastructure, the Budget recognized the urgent need both to upgrade existing facilities and to build new ones.

This initiative to remove potential bottlenecks to growth and pave the way to a higher growth rate over the medium to long term would benefit several infrastructure-related sectors, including those associated with roads, sea-ports, airports, power, etc.

The banking sector would also appear to benefit from potential changes to statutory ratios such as SLR and CRR, thus providing for more flexibility in implementing monetary policy.

The Budget's stance on tax reform was also very positive. Taxpayers in the lower brackets also saw a substantial reduction in taxes, which should translate into a considerable catalyst for domestic consumption.

This could likely continue the consumption boom, prominent particularly over the past three years, where domestic consumption in sectors such as housing, consumer durables, mobile phones and leisure contributed immensely to incremental GDP growth.

Overall, we continue to be positive on equities over the medium to long term, expecting growth to be driven by strong macroeconomic fundamentals, robust earnings growth in the corporate sector and a sustained interest on the part of Foreign Institutional Investors (FII's) as well as greater participation by domestic investors.