United Way of Chennai conducted a Business Session on ‘Post Budget Analysis’ at the Radisson Blu Hotel in Chennai on the evening of Saturday, 2nd March 2013. It was a well-attended event, with a large audience eager to listen to experts speak on the Union Budget and its ramifications on investments and market trends going forward.
The session started off with a welcome address by Mr. M. A. Alagappan, Chairman, United Way of Chennai on ‘Meaningful Impact on Livelihood by UWC’. In his address, Mr. Alagappan described the activities of UWC and the very positive impact that it has had on a large number of underprivileged and differently-abled youth. He also stressed upon how UWC has been able to act as an effective intermediary between the corporate social responsibilities of large organizations and deserving community development projects.
After an introduction, Mr. P. N. Vijay, well-known financial expert, delivered the keynote address of the day – ‘Budget 2013 – High Return Possibilities in a Ratings Watch Era’. Starting off with a remark on how much he has enjoyed doing the postbudget analysis for the third consecutive year, he gave some background and history of the Union Budgets, and how successive budget announcements have gradually transformed from being merely announcements of tax rates to becoming a platform for announcing policy measures that go far beyond just tax rates, Mr. Vijay went on to more specifics on the current budget announcements.
Mr. Vijay started with backdrop for the budget FY14 where in, he stated that some of the serious domestic challenges faced by the economy are mainly in terms of high retail inflation, slower GDP growth and higher levels of fiscal and current account deficits. He also highlighted the falling trends in investments relative to GDP, falling savings rates and lower investor confidence. Further he stated that the domestic economy was facing considerable headwinds by way of unfavorable combination of macro factors that could lead to a potential ratings downgrade.
On the FY14 Budget front, he stated that a higher allocation was proposed for plan expenditure, whereas subsidy provisions were on the lower side, and that revenue projections were somewhat optimistic. A slew of initiatives were also announced during the budget speech with regard to the proposed Food Security Act, cash transfer schemes, investment allowances, inflation-indexed securities, additional surcharge on assessees with incomes of `1 cr and above, increase in corporate surcharge, introduction of commodities transaction tax and some reductions in securities transaction tax. Some allocations to states to alleviate the losses suffered by them consequent to the introduction of the Goods & Services Act were also discussed.
Mr. Vijay highlighted that the equity markets initially reacted negatively on the lack of significant initiatives and ambiguity on the Tax Residency Certificate issue that could be important for foreign investors to take advantage of double tax avoidance treaties. He was of view that the budget did not propose any heavy dose of taxation and no major announcement. On the global market front, he was of the view that trends are improving given the improved investor outlook and higher liquidity. On the domestic market front, falling interest rates and reducing fiscal deficit are positive triggers for the markets. He expects 15% upside from the current equity market levels over a 12-month period and no rating change. He further stated that the risk to his views would be any delay in global recovery and domestic political development ahead of the election year. Upside scope to his views would be stronger than anticipated recovery and return of flows from retail investors.
Mr. Vijay’s keynote address was followed by a panel discussion. After the panelists were introduced, the session started off with questions from audience to Mr. Nandkumar Surti , MD & CEO, JP Morgan Asset Management and Mr. Sankaran Naren, CIO, ICICI Prudential Asset Management. The session was moderated by Mr. Vijay. During the session, in the course of reacting to a number of interesting questions put up by the audience, both the panelists shared their views on the market and asset allocation to be followed by the investors going forward. Mr. Naren was of view that equity markets would be more or less range-bound in the near term and sentiments would improve gradually towards long-term investing. Key indicators to watch for the market would be crude oil moving to below USD 95 per barrel, the Rupee moving significantly in either direction or foreign institutional investors selling for reasons not connected with India. He highlighted that large-cap companies have higher cash and bank balances in their balance sheet which would help build the capex cycle for the next 1218 months. Liquidity in the equity markets would be the key driver in FY14, which would depend on household savings, which have dropped from 10% in 2007 to 4% in 2012. He also highlighted that the recent rally was driven by foreign institutional investors who have brought in more than `1,28,000 cr last year. Mr. Surti expects interest rate cuts to happen in the next 12-24 months as a result of lower inflation and fiscal consolidation. He also did not anticipate any ratings downgrade. Both the fund managers were of view that investors can maintain 70-80% in debt and 20-30% in equities and gradually build equities over the medium term.
After the panel discussion, Mr. N Lakshmi Narayanan handed over mementos to Mr. Vijay, Mr. Surti and Mr. Naren. A vote of thanks was delivered by Mr. Rajan Srikanth who thanked the audience and the sponsors of the event.