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Fundamentals February 28, 2013


Nik's Diary
The Indian market opened in the green today mirroring positive opening trades in the SGX Nifty and most of the Asian markets. Asian markets are trading higher, as better-than-estimated US economic data has bolstered confidence in the global recovery. Moreover, the Indian markets will closely watch out for the Union Budget today. The US market, after moving mostly higher over the course of the previous session, saw considerable further upside during the trading session on Wednesday. The substantial strength that emerged on Wall Street was partly due to a positive reaction to a pair of reports on durable goods orders and pending home sales. Traders also kept a close eye on Capitol Hill, where Bernanke, appearing before the House Financial Services Committee, reaffirmed his support for maintaining the Fed’s highly accommodative monetary policy. Most of the European bourses finished in the green on Wednesday, rebounding from the weakness of the previous trading session, which was due to the uncertainty created by the results of the Italian parliamentary elections, where no single party or coalition secured enough seats to form a government on its own. Meanwhile, Indian markets rose notably on Wednesday, after Ben Bernanke signaled that the Fed will stick to its easy monetary policy for a long time. The preBudget Economic Survey, tabled by Finance Minister yesterday, projected an optimistic 6.1 to 6.7% growth for the next fiscal and indicated that the downturn in growth is more or less over.


Economic Survey paints an optimistic picture
The pre-Budget Economic Survey tells a story of self-inflicted economic pain, while being optimistic on growth reviving in the next fiscal. It calls for curbing the fiscal deficit and cutting down on wasteful subsidies to that end. But it clearly argues for protecting developmental expenditure so as to preserve growth, which means raising tax collections to reduce the deficit. The Survey also explicitly calls for augmenting tax revenues by broadening the tax base rather than by increasing marginal rates of tax. That should spell good riddance to all that talk of a new super-rich tax. The Survey makes a lot of sense when it stresses the need to boost savings as the right way to rein in the burgeoning current account deficit. The Survey makes it clear that gold imports can be curbed primarily by making financial investment avenues more lucrative. This could translate into additional incentives for household financial savings. Growth has been tardy because of a steep fall in investment, particularly by the private corporate sector. This, in turn, has two drivers. Inflation-constrained RBI has raised interest rates and policy paralysis has kept projects dangling for want of clearances. Unlike last year, the key component of inflation this year is food grains: 17% in the third quarter. This, at a time when the government is sitting on stocks of 70 million tonnes of grain. The minister and top babus in the food ministry should be sacked forthwith, for creating food inflation and stalling investment and economic growth in general. The Survey is silent on the need to scrap state monopoly over coal, which is one factor in distorted coal linkage allocation and the principal factor in fuel shortage that is making 50,000 MW of power capacity lie idle. So is the Survey silent on the judicial curse that has laid the country's mining sector barren and stunted telecom. The Survey is gung-ho on the role of the small and medium industry in creating new organised sector jobs. The RBI should heed the finding that a variegated banking system that allows for small, localised banks supports the small and medium sector. On the whole, the Survey captures the large picture rather well. Source: Economic Times

L&T bags orders worth `1,504cr in various segments
Engineering and construction firm Larsen and Toubro (L&T) on Wednesday said it has secured orders worth Rs 1,504 crore order during the ongoing month from India and abroad. The company's water and effluent treatment business unit has bagged orders worth Rs 621 crore for two projects in West Bengal and one in Qatar, it said in a BSE filing. The solar business unit of L&T Construction, which is a brand name for L&T, has received an engineering, procurement and construction (EPC) order worth Rs 413 crore from Kiran Energy for the construction of solar photo-voltaic plants in Tamil Nadu. The power transmission and distribution business got a Rs 265 crore-order from Tamil Nadu Generation and Distribution Corporation for power distribution work across various districts in Tamil Nadu. "In the heavy civil business, various additional orders worth Rs 205 crore have been secured from ongoing projects," it said. The scrip of the company was trading at Rs 1,406.20 apiece, up 2.85 per cent during the afternoon trade in the BSE. Source: Business Times

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