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The vote on account is in sync with expectations of the market. Better than budgeted spectrum auction, dividend and lower planned expenditure helped the government contain fiscal deficit at 4.6 per cent of GDP.
The moratorium on student loans, a higher target for agriculture credit, the one rank one pension scheme for retirees are well within the acceptable discretion limits of the market.
The reduction in the excise duty for auto, select capital and consumer goods will help tackle the cyclical slowdown in the respective sectors. The Indian economy has to manage Fed tapering, rating review and the revival of investment and growth in the months to come.
The vote on account has stressed deepening of the currency and debt markets, the revamping of the ADR/GDR scheme and a simpler clearing and settlement mechanism for attracting FII flows. It has also focused on developing the manufacturing sector and giving a push to the Delhi-Mumbai Industrial Corridor project. This can augur well for FDI flows. The statement of intent on financing CAD through FDI and FII flows is reassuring.
Rating agencies will be comfortable with the trend in fiscal consolidation as the fiscal deficit target for the next year is set at 4.1 per cent and 3 per cent for FY 17. Also, fiscal consolidation along with improving macros of lower CAD at less than $45 billion for FY 14, the softening of inflation-wholesale price index for January below 5 per cent, improving quarterly GDP growth numbers etc will provide confidence to rating agencies.
The vote on account correctly focuses on fiscal consolidation, CAD, growth and inflation equilibrium, infrastructure development, increasing the share of manufacturing in GDP and skill development. Execution becomes crucial to convert intentions to actuals on ground. It will be important to watch how the US Fed taper impacts FII flow in the short term.
The earnings season for the fourth quarter FY 14 will be keenly watched to check if the momentum is sustained. Thereafter, the opinion polls and the actual formation of the government and its agenda for revival of investment and growth will be factors that will influence the market.
Nilesh Shah, Managing Director and CEO, Axis Capital
