Indian Markets On Fiscal Steroids

It's Finance Minister Arun Jaitley's day in the Indian sun, if the reaction of the financial markets to the budget numbers is anything to go by. The defining moment arrived when he put his stamp on the economy with fiscal prudence and holding the fiscal deficit target at 3.5 percent - the all-important number looking at how financial markets have recovered.

Jaitley also added, with good measure, relief to lower incomes and a steady long-term growth boost to consumption, rural and agricultural groups and housing and infrastructure.

With fiscal discipline under the net, Jaitley endeared himself to the Indian stock markets. The Sensex bounded up nearly 1,215 points, a rally not seen in a long, very long, while.

This perhaps shows, a good dose of 'discipline' can, and does, do wonders.

While the frontline index sports gains of 4.66 percent the past two days, the larger, broader market saw many stocks hitting upper limits, rising 10 and 15 percent as punters digested the finer implications. India's biggest bank by size surged 16 percent in two-days; ditto with many other public-sector-bank stocks.

The new-found confidence in the stock market seems to have gripped even hardened bears and foreign institutional investors, who, till last week, were furiously exiting Indian stocks. In two days, the latter have bought stocks worth Rs 3,197 crore, again not seen in a long time. Bull-market prognosticators feel vindicated.

Public-sector banks have gotten a new line of credit. Almost all investors had written them off as un-invest-worthy, plagued as they are with billions of bad loans. But when the Reserve Bank of India announced that banks' tier-I capital could comprise property values, it has re-invigorated their balance sheets - and stock prices. The PSU Bank Index rose 13.22 percent in two days.

Till last week, the currency and bond markets were struggling to find ways to halt their slow slide. The rupee was hurtling toward the all-time low of Rs 68.85 it touched last August 2013. But soon after the budget's numbers, the currency markets about turned 180o. The Indian currency is now at Rs 67.55 to the dollar.

Bond yields have come off, too, on the unexpected news that the government will not crowd out the private sector as it has kept its borrowing program lower than markets expected. The 10-year G-Sec, which was up to levels of nearly 8 percent, is now back to 7.6 percent.

In the meantime, for now at least, investors and beaming brokers are back in business. Enquiries at the trading desk about the next multi-bagger are pouring in, according to some dealers. The rebound has been so swift that many investors have been left haplessly out having waited for the markets to fall further.

Investors should note that the fiscal math could still go haywire if the government does not receive the anticipated revenue from divestments, or the outgo due to the 7th Pay Commission recommendations turns out to be more than allocated. The budget's actual figures, however, will be known only next year.

Another note for investors, the global economy is still wobbling. Rating agencies have put out a negative outlook on China, which has been grappling with slackening growth and rising unemployment.

But, surely, this should be news of another day.

For now, enjoy the money rain till it lasts.