Was This Budget Important?

While most might think that this budget missed expectations. The real thing is that most budgets are the same. The history of Indian budgets shows that markets rally in expectation and sell off on news. In a few cases if the market has already fallen it bottoms as there is no bad news either, and surely the FM is careful enough to ensure that.

There is too much emotion build around this event even though many end in non events. Reason is that historically the Indian reform story was transmitted via budget announcements and thus is received a lot of attention. Since then it is both a mean of politicians gaining footage to speak for an hour in front of the nation and the Media getting to TRP where the nation watches and everyone of importance comments on it.

But from a stock market point of view on 9/10 occasions the ongoing trend reverses in the near term, on a sell on news or buy on news basis, a contrarian trade. It is almost a blind spot at that. The economic cycle does not change because of the budget but the budget is a function of the cycle. A strong cycle means revenues are good and the government gets more to spend, if the cycle is weak then they get less to spend for the next year and have to budget based on the ''All is Well'' theory or that All will be well in the end. And then we think about it next year.

Needless to say that we have a very tight budget this year and are meeting the Fiscal deficit targets. So room to spend does not exist, The bond market has not figured that out yet. But the government knows and that is why it is taking its borrowing abroad. The event is over and now we are back to watching the Economic cycle play out. The revenue shortfall reflect slower growth and the slower spending leads to lower growth and then lower revenues and so on and on. That is the cycle. Once it turns it turns. End of Story.