A Dull Trading Day Ahead

Yesterday’s market action clearly tells you why the Vote on Account didn’t really hold any importance in the present state of affairs. The Finance Minister did his best to assuage voter empathy than anything else. Nothing really came which can be seen as steps towards ushering in economic prudence. All that really mattered was a bit of tinkering in indirect taxes. Cheaper cars mean absolutely nothing in the present economic context where growth has virtually plateaued out at a level which is now looking worrisome to say the least.

The only remarkable point about the whole process seems to be the lowering of the fiscal deficit to 4.6% of the GDP from the earlier projected 4.8%. With little scope for increasing income, cutting expenditure has been the easier way out for the FM for the past two consecutive years. The government has had to cut its plan expenditure for the second straight year as the non-plan expenditure cannot really be brought down on account of the huge subsidy burden that it has to bear. But all said and done the fiscal deficit (at least for now) seems to be well under the red line that had been drawn by the Finance Minister for himself.

But containing deficit is not the only fiscal issue at hand. There is a much larger worry in terms of fostering growth of the economy. With the kind of fiscal plan put in place for the next three to four months (before the general elections are held and a regular budget gets passed) there is little scope for growth to really pick up. The urgent need for revival of the investment cycle has been sidestepped ahead of populist measures. This does not really augur well for the businesses. Except for the Auto industry which has found some favour in the duty reduction, nothing notable has come the industry’s way. All said and read, this Vote on Account is certainly not finding any favour with the business community.

Frankly speaking, expecting any such move was like living in a fool’s paradise. With the political mess that we presently are in, there is no way that the Finance Minister could think economics at this juncture. Businesses, big or small, will prefer waiting out this crucial period of three to four months before the elections to take any concrete decision that can be seen as a step towards targeting growth. That also seems to be a more prudent thing to do, given the fluid political scene as of today.

Well, the markets have reacted to the Vote on Account in a very apt manner. There has been nothing exceptional in the trading pattern yesterday and the same will continue going forward. The Vote is past us and the market will now look out for newer triggers. For now, there is nothing specific to be looked at except for happening around.

Europe continues to bask in the glory of its good economic data with markets there rising for the second straight day in a row yesterday. Strong economic data for the Euro zone has been pushing markets up in the region. Economic growth in the euro zone was up 0.3% in December quarter against the preceding quarter and 0.5% against the same period last year. with the US market shut there is nothing much global exploration.

Asian markets are trading mixed with a higher negative bias this morning. The Japanese Nikkei is up almost a percent in early trades followed only by the Jakarta Composite in Indonesia which is up a quarter percent as of now. All other markets are trading in the red. Hong Kong (Hang Seng down 0.30%), China (Shanghai Composite down 0.43%) and Korea (Seoul Composite down 0.46%) are the worst performers this morning while Singapore and Malaysia are just about trying to contain their losses at a minimal level. The Straits Times is down by a marginal 0.10%, while the KLSE Composite is up 0.06%. The SGX Nifty is trading slightly lower by 6 points.

Global cues and a hangover of the insipid Vote on Account will see the markets open on a flat note this morning. There could be some upside in absence of triggers which could be a continuing effect of yesterday’s trades. The market is likely to continue being range bound for some time to come before it finds new triggers to seek direction.