Illusion and Delusion; Flat start

…Numbers are invaluable: if correct, they assist in informing his own mind, but they are still more useful in deluding the minds of others.- Charles Babbage

The vote on account is being seen more as an arithmetic exercise done to create an illusion to show desired numbers. The fiscal deficit of 4.6% was achieved by controlling spends on Plan expenditure that is likely to impact the pace of economic recovery (curbing non-Plan expenditure is a more prudent approach), rolling-over Rs300bn worth of subsidies to next year and earning ~Rs350bn largely by making PSUs declare larger than usual dividends.

The 2014-15 fiscal deficit target of 4.1% hinges on over-stated revenue collections and under-stated subsidy assumptions. A 19% yoy growth in tax revenues is highly unlikely given the slow pace of the economy and an extremely gradual recovery. Restricting subsidies to the same level of 2013-14, especially post roll-over of Rs300bn, is a tough ask. Quick estimates suggest that the real fiscal deficit number is more likely to be ~5% for 2014-15. The new Government is bound to relook these estimates on assuming power.

The market was more or less unmoved as the FM spoke but notched up some gains towards close. The outlook today is a flat start. The rupee rose to a near one-month high on Monday, helped by some late dollar selling by foreign banks. The rupee closed at 61.84/85 per dollar, after hitting 61.83, its strongest since January 22.

Global cues are not providing any support. The US market was closed for President’s Day. Asian markets are mixed with the Nikkei up around a percent while Hong Kong's Hang Seng index and South Korea's Kospi index are trading lower. China's Shanghai has shed around half a percent.

In the US, a lackluster report on January retail sales is causing worry; the winter chill has anyways been hurting the economy in recent times. Global investors will pay close attention to minutes from the Fed’s meeting which will be released tomorrow. Last month, the Fed had tapered its monthly bond purchases. It is common knowledge that the decision to taper was unanimous among the Fed's 10 voting members, but the market will still try to interpret or look for any indications on how the Fed could possibly act in future.

Back to the interim-budget, it appears to be more of an achievement statement keeping in mind certain steps to ensure that rating agencies don’t raise any red flags. The finance minister has retained the super rich surcharge for now adding that the new government could drop the same.

The FM said the economy is more stable than what it was two years ago following several steps taken by the government and that the growth will be higher in the second half of the fiscal adding that the industry is not suffering from a policy paralysis.

Shares of automobiles companies moved higher after the finance minister P Chidambaram proposed to reduce excise duty for small cars, two-wheelers from to 8% from 12%.

Results watch: ABB India, GlaxoSmithKline Pharma, Gujarat Pipavav and Paper Products.

Trends in FII flows: The FIIs were net buyers of Rs5.22bn in the cash segment on Monday, while the domestic institutional investors (DIIs) were net sellers of Rs2.45bn, as per the provisional figures released by the NSE.

The foreign funds were net buyers of Rs13.38bn in the cash segment on Friday, according to SEBI data.

In other news:

The employees’ union at Bajaj Auto Ltd’s Chakan plant near Pune has rejected the management’s offer to give each of around 850 workers a monthly wage hike Rs. 10,000. (BL)

Tech Mahindra has entered into a global partnership with Acidaes Solutions, the owners of CRMnext Solution, to jointly develop software solutions for the financial services industry. (BL)

State Bank of India, has sanctioned loans totalling Rs100bn to six telecom companies to help them buy spectrum. (ET)

Bharti Airtel has said rates would rise continually in the next few years. (BS)

Wipro said it would take 150 graduates as interns in South Africa in 2014, up from 70 last year. (BS)

Acting on the recommendations of a high-level inter-ministerial panel, the coal ministry cancelled 10 coal blocks allocated to 18 companies including Adani Power, Jindal Steel and Power, Rungta Mines and a joint venture between Tata and South African Sasol. (BS)

Muthoot Finance said it was evaluating options for foraying into the insurance sector and was on the lookout for a foreign partner in this regard. (ET)

Kingfisher Airlines Chief Executive Officer Sanjay Aggarwal has quit after three and a half years at the company. (ET)

Government auditor CAG pulled up BHEL for delays in augmenting the equipment manufacturing capacity, needed for supporting the expansion of power sector. (ET)

Finance Minister has provided Air India a budgetary allocation of Rs55bn as equity infusion. (BL)

For 2014-15, the deficit has been pegged at 4.1% of GDP, 1% point lower than the target in the fiscal consolidation road map, even as the government cut excise duties to spur manufacturing growth, particularly in consumer durable goods, which fell for the 13th month in a row in December. (BS)

In what could be a major reprieve to manufacturers in the automobile industry, Finance Minister in the interim Budget slashed excise duty on two-wheelers, passenger cars, sports utility vehicles and commercial vehicles between 3-6%. (BS)

A Parliamentary panel has rejected the Bill on microfinance institutions and asked the government to bring a fresh legislation before Parliament. The Bill had sought to empower the central bank to regulate them and fix interest rates ceiling on loans to be provided by MFIs. (BS)