After the Budget, market experts have declared that the rally today is a “technical breakout”. This makes no sense to most of us who do not know what is called technical analysis. But the plain fact is that something has hugely changed for the better.
At 16,430, the Sensex has closed at its highest level over the past one month. The immediate reason for this is that huge worries about the fiscal deficit, rising borrowings, rise in excise and other taxes are gone. It is as if a huge stone has been removed from the chest of the market. It is for this reason the short term looks good. The rally will possibly take the Sensex up to 17000-17,200, after which the market will again go down.
It could well be that the market goes lower, thanks to global worries. There is talk of a double-dip recession in Europe. Continuing job losses in the US and talk of a bubble in China make the global situation pretty grim all over again. This will put pressure on the Indian markets in the medium term. However, the market cannot remain immune to a couple of features of the Budget. One, the amazingly low tax on salaried employees. Under the coming regime, right up to Rs8 lakh of taxable income, the tax is only 20%. This puts enormous amounts of money in the public. This will boost both consumption and savings, ultimately keeping the growth going. The second is that the growth momentum of Indian businesses have been kept untouched. The Budget has been a fine balancing act between growth, cutting the fiscal deficit and increasing disposable incomes. All this will be reflected in the long term growth. Unless the external shocks cripple us again, the finance minister has just put the Indian bull on steroids. — Debashis Basu