Union Budget 2010 Simplified

The Union Budget 2010 is out. Finance minister Pranab Mukherjee has presented a gift to the economy in every sense. He ended his 90 minutes long speech by saying that this Budget belongs to aam admi, farmers and entrepreneurs; probably an apt statement to describe it. This write-up will not focus on the intricate details of the budget but will rather highlight the points relevant for individual investors or consumers like you and me.

For starters it is time you start thinking of buying a new handset as the mobile phones are going to get cheaper. But on the other hand excise duty has been raised to 10% from 8%. This means pressure on manufacturing companies especially automobile and cement. But for investors 2% is too less to shy away from automobile and cements stocks provided the fundamentals are good. But to help the cause of such companies the R&D deduction has been hiked to 200%.

The tax payers can rejoice as income tax slabs have been widened. There has been high and preferential allocation in the rural, power generation, healthcare, education and clean fuel sector in this budget.

This means that in the long term horizon of 5-6 years, stocks like Tata Power, BHEL, and Reliance Power are going to do well (Power sector). The rural development will further help the penetration of FMCG companies in rural sector and spurt the demand for FMCG products. But the value stocks according to me are the renewable energy stocks. With pressure from global bodies to reduce carbon footprints and government’s seriousness to the cause companies like Praj Industries and Suzlon are going to do extremely well in the long run.

The banking sector also enjoyed huge importance in the budget. With government keen on penetration of banking in tier 1 and 2 cities as well as rural areas the PSU bank stocks will do well in the near future.

Overall the FM has done a good job with the budget by going beyond the expectations of the public and has ensured long-term sustainable growth of the economy if the guidelines laid down are prudently followed.

As for the general performance of the market, the Sensex rejoiced the budget 2010 by going up by 175 points at 16429 and making a high of 16669. This budget hangover will continue for a couple of days and then the markets will start looking for global cues or major news from the corporate of the country. Despite the spillover effect of the budget the Sensex is unlikely to cross the 17000 mark in the coming week. But this is a good time for very short term investors to book some profits. As for midterm view of the market, it is still bullish but the upward movement will be a lot slower as compared to the previous quarters. The investors can earn by investing intelligently based on the company’s future prospects.

Happy Investing…

Nitish Kumar