Stock markets in India are presently trading marginally higher. Sectoral indices are trading on a mixed note with stocks in the capital goods sector and IT sector witnessing maximum buying interest. Consumer durable stocks are trading in the red.
The BSE Sensex is trading up 140 points (up 0.4%) and the NSE Nifty is trading up 39 points (up 0.4%). The BSE Mid Cap index is trading down by 0.3%, while the BSE Small Cap index is trading up by 0.5%. The rupee is trading at 63.62 to the US dollar.
Market participants are keeping close tabs on Union Budget 2018 to be presented by Finance Minister Arun Jaitley.
Investors will keep an eye out on government's decision on long-term capital gains (LTCG) on shares and corporate tax.
On the sectoral front, companies operating in the real estate sector and housing finance sector will be in focus. The sector is in doldrums and the government may bring in some tax reforms in the Budget to provide a boost to the sector.
Also, companies catering to the road sector and infrastructure sector could be in focus as the government is laying out plans to strengthen the infrastructure of the Indian economy.
Companies catering to the agriculture segment would also be in the news as the government is likely to doll out certain reforms which would be beneficial to the farmers.
We will analyze and share our views on the Union Budget 2018 for you in today's edition of The 5 Minute WrapUp. Stay tuned.
Jaitley faces dual challenge of maintaining its stance on fiscal consolidation and sticking it fiscal deficit target of 3%.
Note that India's December trade deficit widened to its highest in more than three years. This was seen as higher import bills for gold and crude oil weighed on rising exports.
Trade Deficit Widens
A wider current account deficit in the midst of a sharp rise in oil prices, fiscal slippage risks, and above-target inflation point to a weaker macro backdrop for the economy.
One must also note that in the last one decade, India is making serious efforts to reduce the fiscal deficit level. Ever since, the new government came in it has been in favor of fiscal consolidation and meet the long term fiscal deficit target of 3% by FY17-18. This will be the lowest target compared to the last couple of years.
That said, challenges remain in achieving the above stated target. The notebandi exercise resulted in a slowdown. Further, government announced flurry of projects but execution is still pending. This means the government needs to relax its spending to spurt the growth again.
This means, once again, the government needs to fight dual challenge. First, maintaining its stance on fiscal consolidation and sticking it fiscal deficit target of 3% of GDP for FY17-18. Second, it must relax the deficit target for reviving the economic growth from the shock of demonetisation.
It is also worthwhile to note that creating economic growth by the government spending its way out of trouble, cannot continue indefinitely.
As Vivek Kaul writes in one of his recent editions of the Vivek Kaul's Diary... 'At the end of the day the government has a limited amount of money at its disposal. Further, its expenditure tends to be terribly leaky and does not reach a major portion of those it is intended for.'
It would be interesting to see how the government tackles the above challenges. We'll keep you updated on the developments from this space.
In the news from global financial markets, the US Federal Reserve kept interest rates unchanged in its meeting yesterday.
While doing so it said that inflation likely would rise this year, bolstering expectations that borrowing costs will continue to climb under incoming central bank chief Jerome Powell.
Citing solid gains in employment, household spending and capital investment, the Fed said it expects the economy to expand at a moderate pace and the labor market to remain strong in 2018.
It also said its committee had unanimously selected Jerome Powell to succeed Yellen, effective February 3. Powell, a Fed governor who has worked closely with Yellen, was nominated by President Donald Trump and confirmed by the US Senate.
On interest rates, the Fed said it expects "further gradual" rate increases. The target range for the federal funds rate currently is 1.25% to 1.50%.
Note that with the US economy chugging along for many months, the Fed is now gradually easing off the stimulus it provides to the economy by raising interest rates to more normal levels.
Yet, so far, the cost of lending has been slow to respond to the interest rate increases. But as the Fed continues with this policy, consumers who borrow to buy houses, cars, refrigerators, and other items will have to pay more for those goods.
US Federal Reserve rate hikes generally have a negative impact on emerging economies. But currently, India is seen as better equipped than other emerging markets to ride the impact of higher US interest rates on the back of stronger economic growth.
How this pans out and what impact it would have on the global financial markets remains to be seen. We'll keep you updated on the developments in this space.
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