Weekly Newsletter - Feb 21 2010

Without doubt, next week will be action-packed for the Indian markets. Apart from Railway Budget, Economic Survey and Union Budget, we will also have to grapple with the F&O expiry and of course Q3 GDP figures. To add to the anxiety would be newsflow from the external front, which of late has been exerting quite an influence on the overall market sentiment. Talking of global markets, China will resume trading after a long holiday. The surprise hike in reserve ratio just before the holiday started and the Fed move to raise the discount rate could weigh on that market. Not much data is expected from China next week. On the other hand, a lot of economic reports are due from the US next week, including a spate of data on housing and revision in third quarter GDP.

Coming back to India, the main focus will be on Budget and what the two central ministers have in store for all concerned. One thing is sure they can't afford to be too populist this time around. They better not, as the economy is at a crucial juncture and any further slippage in policy making could hurt its prospects going forward. A broad consensus that is emerging on the Budget is that there will definitely be a partial rollback of fiscal stimulus, besides articulation of a roadmap to return to the path of fiscal prudence. One should also watch out for announcements on disinvestment, GST rollout, 3G auction and the Centre's estimate of market borrowings. Given the spiraling inflation, we expect the Government to try and address growing concerns on this front as well.

Speaking of sectors that might gain from the Budget, the usual suspects are Infrastructure, Education, Fertilizers, Textiles, Agriculture, etc. At the same time, a few sectors could be at the receiving end as the Centre exits from the ultra loose fiscal policy. The Finance Minister will also have to exercise restraint as far spending is concerned, including some of the UPA's pet social projects. The big question is can the UPA rein itself in? It would also be interesting to see whether the Finance Minister has the courage to effectively tackle the long-standing issue of open-ended subsidies for the Oil & Gas sector. The third panel set up to suggest remedies for this sector has done its job. The ball is now in North Block's court. Over to you Mr. Pranab Mukherjee.