The Bombay Stock Exchange 30-stock Sensex and the National Stock Exchange 50-stock Nifty closed the action-packed week at 24,646.48 and 7485.35 points respectively. A ferocious rally enabled both the indices to gain 6.4 % and 6. 5 % respectively for the week: this is the biggest weekly gain in absolute terms since May 2009 and the best weekly percentage gain since December 2011. A good Budget and favourable global cues enabled the bulls to make a strong come back.
Finance Minister Arun Jaitely presented his third Union Budget under very challenging circumstances. The Chinese economic slowdown, fears of further devaluation of the renminbi, the crude crash and the concerns regarding the normalisation of interest rates by the US Federal etc. posed formidable headwinds for the global economy. Domestically, the rural distress following two failed monsoons, the poor corporate top and bottom lines, the high level of stressed assets in the banking system etc. were major issues. Private capital expenditure is very low due to excess capacity and poor demand. Therefore, Jaitley was expected to stimulate the economy with increased public expenditure. Implementing the 7th Pay Commission award and the OROP commitments will constrain the fisc. At the same time, the Finance Minister was expected to tread along the path of fiscal consolidation. Presenting a Budget in these difficult circumstances was indeed, a challenge. To be fair, Jaitley has succeeded in managing the various contradictions and with a fine balancing act presented an imaginative budget, without being populist.
Even though the global environment is challenging, the domestic macro environment is healthy. Economists rely on four macro indicators to judge the performance of an economy. These are: GDP growth rate, the fiscal deficit, the current account deficit and inflation. Judged by these four parameters, the Indian economy is doing well. GDP growth rate of 7.6 % for FY 2016 is the best among the large economies in the world. Fiscal deficit at 3.9 % is lower than the 4.5 % this government inherited. The current account deficit at 1.5 % (4 % in 2013-14) is under control. CPI inflation at 4.9 % for 2015-16 is much lower than the 9.5 % for 2013-14. These sound macros enabled the Finance Minister to embark on some ambitious programmes with focus on the rural economy and infrastructure.
From the capital market perspective, the much-feared abolition/ tweaking of the long-term capital gains tax did not materialise. This was a big relief. A growth-oriented Budget with the promise to keep the fiscal deficit down to 3. 5 % for FY 2017 came as a shot in the arm for the market. A rate cut by RBI is imminent. The market mood and sentiments have dramatically changed for the better after the favorable cues from the US economy and resumption of strong buying by FIIs. The steady rise in crude and metal prices also stood the market in good stead. The resumption of ‘risk on’ in global markets indicates that the risk of a ‘made in China global recession’ is receding. Going forward, the bullish mood is likely to continue.