Budget 2014 is no run-of-the-mill event. It is the first budget from the NDA governmentin which people vested their faith and hope. Thus, investors cannot ignore this budget.
The Indian people have large expectations from Budget 2014. Thus, the Modi government needs to balance between expectations of the industry and the common man. Let us look at some issues and how the government is likely to tackle them. We will also look at some promising industries in which the government is in an expansion mode.
One of the major issues the government faces now is inflation, which is expected to remain high or even move up on growing concerns of a delayed and lower-than-average monsoon. Government of India (GOI) must have understood by now that it cannot reduce inflation by just increasing interest rates, lowering liquidity and the same time increasing essential food production and distribution efficiency in economical ways.
Though fiscal deficit has come down in the past few years, it is still cause for concern and GOI should start moving towards the non-deficit era. GOI may do away with a few subsidies to come out of the deficit situation over the next few years.
Foreign Exchange / FDI
GOI is focused on increasing forex reserves and foreign direct investment into India to help pickup economic activity. Sectors such as infrastructure, energy, defense, and agriculture should see more investments in coming years, given GOI’s development plans. Hopes are high the GOI will develop favorable policies to create a better investment environment.
Interest rates are high and this trend is likely to sustain considering high inflation and enough liquidity in the system.
GOI is looking to change the perception of India as a country of unstable taxes to a stable tax regime. At the same time, it is difficult for GOI to lower or maintain the same tax structure for the common man, given the rising subsidy burden and huge development plans it intends to execute over the next few years.GOI may give more room for retail investments by increasing tax exemptions on certain products.
Mutual Funds have now become a giant industry with assets under management (AUM) of more than Rs.10 Lakh Crores. The mutual fund industry is a strong candidate to help India increase long-term investments into the equity and debt markets, which would eventually accelerate growth of the Indian economy. The Finance Ministry and SEBI are keen to improve the business environment for the mutual fund industry.
The new government is serious about Life and Health insurance for the common man and is increasing its penetration. It is also considering innovative ideas such as agriculture insurance.
GOI has big development plans for industries such as infrastructure, energy, defense, agriculture, and manufacturing. It is expected to improve business environment for these industries and provide a fillip to growth numbers from these sectors, which would not only create more job opportunities but increase stock prices of companies in these sectors.
Surely, the Indian economy is expected to pick up pace led by the solid, long-term, development plans of the new government. If these plans are implemented effectively, we will see sustainable growth in the economy, which should reflect in improved stock market valuations earlier than expected.
Investors should consider regular investment into all asset classes based on their risk profile and should remain overweight on equities either through direct stock market investments or through mutual funds. Investors would benefit over the long term from the decisions in the upcoming budget.
Product Research & Financial Planning
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