Positive Undertones in the Economy – Part 1 :)

positive undertones of economy

We had a positive Q1FY10 result, which boosted the sentiments of investors regarding the economic recovery.

🙂

But are we actually out of it?

Though the earnings were encouraging but if we analyze it, the results had a “bottom-line growth”… may be because of the lower costs of raw material, huge cost cutting, profit from other sources like stake sale or stock market trading etc.

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With lower interest rates, government spending in rural areas and lower base year, I am very much optimistic for Q2FY10 that these results would be “revenue driven”.

🙂

Top line growth is not only good for the company and stock market but also for the economy as a whole.

🙂

Apart from the Q2FY10 numbers, there are positive undertones in the markets and investors should use these undertones for picking up fundamentally good stocks.

🙂

Those are :

1. Measures for fiscal deficit

The GoI is taking several measures to reduce the fiscal deficit.

Disinvestment is high on the priority list.

🙂

As private spending is increasing, Govt. is reducing need for stimulus.

A large part of deficit is contributed by the oil subsidy.

For this, the ministry of petroleum is lowering the subsidy burden in Kerosene and LPG.

Recently, improved tax compliance with new tax code and enforcement through the recently initiated Unique Identification Project are other steps to control the deficit.

🙂

2. Accelerating production

India’s industrial production posted the fastest pace in the last 16 months in June, which shows that India has endured the worst of the global recession.

The reason can be low interest rates, which has given confidence to the consumers to borrow to buy vehicles or other factory-made goods.

🙂

3. Capital flows to India

Another positive trigger can be the capital flows to India, which is expected to increase because of better medium-term growth and faster recovery prospects.

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The Q1FY10 early indicators suggest that NRI deposits, FII portfolio inflows and inward FDI flows have generally been strong, as compared to the net capital outflows witnessed in the last two quarters of 2008-09.

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4. Exports seen at $167 bn in FY10

For Indian Export Organisations, India’s exports are expected to touch around $167 billion, almost the same level of last year in FY10.

The commerce ministry looks ambitious and optimistic and has come up with foreign trade policy for the next 5 years, whereby; it aims to have an export of $ 200 billion by FY11.

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This will ultimately improve the declining trend of exports and will give thrust to employment-oriented sector like Textiles and Gem Jewellery.

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5. The New Tax Code

The new tax code has simplified the tax laws and will result in better compliance and a broader tax base.

The resulting incremental tax revenues will first reduce the fiscal deficit. This is a net positive.

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People, there are many other factors and Positive undertones in the economy which indicates towards the betterment of the economy and stock market.

We would come up with the rest of factors in Part 2 of the topic in next blog. 🙂

Stay Tuned 😉

India’s industrial production posted the fastest pace in the last 16 months in June, which shows that India has endured the worst of

the global recession. The reason can be low interest rates, which has given confidence to the consumers to borrow to buy vehicles

or other factory-made goods.

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