A mini-analysis

BEATING THE STREET

Normally Budget-analysis consists of several hours of intensely concentrated but boring activity, followed by weeks of tracking the market as everyone gradually comes to terms with the implications and nuances.

On February 28, I've tended to open an "informal market" speculating on the possible sources from where the FM of the day might dig out the statutory quotes to embellish his speech. This helps keeps attention deficit syndrome at bay as the speech meanders on.

This time we've seen a series of successive shocks instead. First, one day of tax-cuts, then, there was one day of giveaways. Then came the FDI"�hike decisions along with the deferral/ denial of FDI hikes.

In-between, there was a little volte-face on trading action via Participatory Note.

On the whole, multiple mini-budgets seem to be a much more entertaining process. The effect on the market has been fascinating. Normally, Budget-day trading sees largescale volatility and things then settle down into a trend in the following sessions as people wade through the paperwork.

Here, the market has barely discounted one set of proposals before the next lot has been placed on the anvil. So instead of one day of extreme volatility, we've had several days of roller-coaster action as the market has digested things in bite-sized pieces.

In fundamental terms, what have we seen? Nothing that's totally unexpected. On the whole, growth should remain buoyant and get a boost due to duty cuts and a more investment-friendly attitude.

The giveaways are election-year gimmicks but the short-term effect won't be too debilitating because of the buoyant economy.

There are long-term logical inconsistencies in the proposed pension scheme but those are likely to provide headaches only much further down the line.

The recent expression of worry about P-Notes by North Block is surprising. Hedge fund money and presumably hawala money has flowed in through this route and on a previous occasion, Sebi was asked to lay off P-Note users.

With an election on the agenda, a cynic would have expected the channel to stay open. The threat of shutting this door has contributed to the selling this week.

The mini budgets seem to gamble on two things. One is the Indian consumers' enhanced desire to go out and buy things, thus ensuring high, demand-led growth.

The other is the expectation that the private sector will now invest in infrastructure with greater enthusiasm, ensuring the success of all the grandiose road-port-power building schemes.

The market was apparently expecting a hike in the telecom sector FDI limit. While deferring this makes things more difficult for the Bhartis, it won't stop investment into the sector and, the limits will almost inevitably be raised.

In fact, telecom scrips may well deliver value for money once the optimists have sold out and driven prices down.

In the banking sector, the decision to hike FDI limits puts a floor under private sector bank prices. It may start a renewed bull run in target scrips.

The petroleum sector hike decision doesn't really make much immediate difference. It's difficult to think of potential targets apart from Essar Oil. The single-refinery PSUs will almost certainly be bought out by their big brothers.