Niveshak February 2010 Issue

Thursday, February 25, 2010 , Posted by Team Niveshak at Thursday, February 25, 2010

Dear Niveshaks

Here comes the month of February- a month which is long awaited by many of us to witness the balance sheet and income statement of our own – India Inc. Yes!! I am talking about the Union budget which is expected to be released on 26th Feb by our finance minister Mr Pranab Mukherjee. His first budget may not have been accepted well by Indian citizens, but this time the old warhorse is leaving no stone unturned. He is expected to target on the GDP growth rate as this budget will be very critical for India to lead the recovery from the global economic crisis. However, looking at the Reserve Bank of India’s (RBI) recent review of the monetary policy, we can predict that the forthcoming Budget will reverse the expansionary fiscal policy and rein in fiscal deficits. After two years of runaway deficits, surely, the time is ripe for the finance minister to initiate the fiscal consolidation process in the forthcoming Budget. Besides this, the Railway Budget 2010-11 is also scheduled to be presented to the Lok Sabha on February 24 after the Budget session of Parliament begins on February 22.

The “January effect” on the sensex also seemed to have faded away by the fag end of January 2010, when our benchmark BSE sensex broke by 490.6 points on a single day due to global cues and fears of tightening monetary measures by central bank. As per the expectations, RBI launched a battering on inflation by increasing the cash reserve ratio by 75 basis points to 5.75 percents. We hope that this move brings cheers to the aam aadmi by dampening the momentum of sharp surge in food prices and uneasy price escalation which has been a cause of worry for all of us. However, there have been some positive results too against the backdrop of this RBI’s decision. The manufacturing sector seems to be poised for revival after the HSBC Markit Purchasing Managers Index (PMI), one of the most reliable indices tracking the health of the manufacturing sector, climbed to its highest level in one-and-half years to 57.6 in January, 2010. We also see IIP numbers reaching new heights. The Indian IT sector, on the contrary, might get perturbed after US president Obama’s decision to end tax breaks to American firms that outsource jobs overseas. But it needs to be seen if the president can afford to walk his emotional talk.

Now as we are speeding on a road to recovery, a question arises in front of us is – Are we achieving this economic recovery at the cost of fiscal deficits and inflation? So to throw a word of caution on this, we have our cover story which highlights some of the inherent financial problems like huge fiscal deficits in India, and which shows a possible way ahead for us in this edition. This reading also provides a primer on the resurgence of mergers and acquisitions post recession and an article on “Calendar Spread” along with some arbitrage trading strategies for Index spread trading. Let us go through some really insightful articles that our friends from across all B-Schools have penned down. Hope this issue would prove to be an interesting read for you.

Wishing you all a very Happy Holi!!!

Happy Investing
Bhavit Sharma

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