Newsletter Comment - Budget 2007

This time the father of the dream budget delivered a nightmare baby. We investors think that the budget is for the share market and the Industry. In fact in the current budget the Govt. intends spending huge amounts for agriculture, irrigation, education, health, housing and building roads. Most of our industry depends on Govt. spending. Three years back the Govt. spending on road building and construction was so low that most of the cement shares and steel shares hit their bottom. In other words even though nothing is mentioned directly such huge allocation of funds will definitely benefit industries like steel, cement, construction, pharmaceutical (specially condom manufacturers like Cupid) pipe manufacturers (Finolex industries) ,water treatment (Ion Exchange) drip irrigation ( Jain Irrigation)

Unlike earlier post budget scenario this time whether a co. is benefitted or not all the shares got hit by huge selling. Even before the Budget was presented in the early morning trade itself the Sensex fell by 500 points.

PANIC? It is also made in China. According to Morgan Stanley it seems these days even global meltdowns are made in China like almost every thing else. On the eve of the presentation of the Budget the share markets all over the world fell. The panic button was pressed in China. After touching a record high the Shanghai Index crashed by almost 8%. The fall in the Chinese market was taken by the western markets as an indication of slowing down of the Chinese economy. When China sneezes the whole world catches a flue. The reason being China is the biggest buyer of global commodities. The whole world depends on China to buy their commodities. Most of the Americans have invested in China and exporting the products made in China to USA. Hence a strong China is a must for the survival of global economy.

The day after the Budget the Shanghai Index climbed back by 4%. The fall was explained as due to a crack down by the Chinese Govt. on economic offenders. It was discovered that several IPOs recently floated happened to be illegal. The Chinese Govt also wants to now the colour of the money that is flowing into China.

Once the Chinese Markets recovered our markets also sprang a surprise by rising by almost 250 points. All over the world there was a recovery and the markets fell again on Friday. It appears that our markets are now looking at the global markets for clues. Most of the foreign analysts believe that the future course of the markets will be dictated by happenings in China. The current fall perhaps is due to huge FII selling on the day of the budget (Rs.1644 Cr) as well as the day after the budget (Rs.453 Cr). This week alone FII have sold shares worth Rs.3000 Cr.

Another fear is that a strong IPO pipeline may affect liquidity from secondary markets has triggered a sharp correction. Several IPOs are in the pipeline to draw away more than 15,000 Cr from the market. From a lifetime closing high of 14652.09 on 8 February, the Sensex has lost 12%. It is down 6.5% in calendar 2007 so far. The Sensex has shed 1766 points. At the current level of 12886 that was the Sensex as on October 2006.

The markets have always fallen after the budget and remained always in the red on the Holi. Any recovery may come only after the Advance tax date (15th March) is over. The previous year being the only exception. The huge in flow of FII money prevented the market from any fall.

Market outlook: On Friday morning when the news of the rate of inflation was announced as 6.05% instead of 6.63% of the previous week the Sensex sharply rose by 94 points. When the news of lower inflation was flashed shares in the group of cement, bank and two wheelers rose. There are every signs that the much hyped rate of inflation may come down to 5.90% next week and this may trigger a market recovery.

It is the shares that have fallen higher will bounce back. On Friday sugar shares rose sharply. Firm international prices for sugar futures lifted sugar scrips. Bajaj Hindustan gained 5.9% to Rs 185, Balrampur Chini Mills rose 5% to Rs 63.70, and Bannari Amman Sugar gained 4.4% to Rs 695. The New York Board of Trade's May raw sugar contract rose 3.8% and London's May sugar futures ended up 3.5%. Hence do not give up hope and have lots of patience this time to gain in the market. It appears that one factor which will decide the future course of the market will be the global market conditions. Only recently the Wall Street had the biggest plunge of the day by falling over 546 points.

What the American Astrologer predicts: Arch Crawford who’s Wall Street Clients pay $ 5000 per annum for his astro prediction newsletter has adviced his clients to stay away from the market. A lunar eclipse and an opposition of Saturn and Neptune will keep the markets bearish. Similar combinations in the past have bought huge losses to the markets. He also says a so called Mars – Uranus cycle which runs from Aug 13th 2006 to March 27, 2007 have dented the markets in the past. Hence a recovery can come only after 27th March. He also concludes that “Let us be clear that does not HAVE to happen but it is more probable until then.