What a week for Indian Investors!!!

Rex Mathew
05 March 2005

Given the sustained pressure on the government from political quarters for more populist policies, the market was expecting some tough revenue generating measures in the budget. After the build-up in February, most market men were expecting a deep correction post-budget, which has generally been the past experience.

The budget turned out to be a masterful exercise in managing expectations, both of the right and the left. The restructuring of personal income tax slabs and the fiscal incentives to divert savings into more productive instruments like equity-linked mutual funds would give a major fillip to consumer demand as well as capital formation.

The market welcomed the budget wholeheartedly with a big rally on budget day. The momentum build up helped the indices to cross pervious resistance levels and record lifetime highs. Worries on the fiscal front and industry complaints about the regressive nature of 'fringe benefits tax' were brushed aside on aggressive buying by both domestic and foreign investors. The Sensex closed the week at 6850 and the Nifty at 2148, all time high closing level for both indices.

World markets also remained buoyant with the US indices hitting a three-and-a-half-year high on Friday. European markets are also at three-year highs despite weak economic forecasts, while Japan is at an 8-month high. US Fed chairman in his Congressional testimony was generally positive in his outlook for the US economy and gave a relatively stable outlook for the US Dollar.

The US economy added more than a quarter of a million jobs in February, double that of January. The job growth was aided by strong growth in services and, surprisingly, positive figures in manufacturing as well. Manufacturing and capital goods orders posted growth even as consumer confidence level showed a marginal decline. A strong US economy is critical for the continued growth of emerging economies especially since Europe, with the exception of UK, continue to remain sluggish.

A strong US economy and a stable Dollar are critical to Indian textile exporters who are scrambling for export markets in the post quota regime, facing aggressive Chinese competition. Indian IT companies can expect larger IT spends by US corporations and a stable price environment. Robust job growth in the US can stifle anti-outsourcing noises within US.