Franklin Templeton, Max New York, Future Generali on the impact of Union Budget proposals
Sivasubramanian K N, CIO, Franklin Templeton Mutual Fund, on equity markets
The rising input costs due to demand-led pressures and higher global commodity prices pose challenges to corporate India. In recent months, the trade deficit has moderated due to rising exports, but the current account deficit at close to 3.5 per cent of GDP still remains a concern.
The government introduced additional measures to ensure that capital flows remain strong, which include - allowing foreign individual investments in equity mutual funds and the $20 bln hike (overall $40 bln) in FII investment limits for corporate debt.
We believe the recent corrections in the Indian market due to a fall in global risk appetite and reallocation towards developed markets does offer attractive long term investment opportunities.
Santosh Kamath, CIO-Fixed Income, Franklin Templeton, says that the debt market will remain under pressure
Markets benefitted from the announcement of a lower fiscal deficit for the coming years. In 2010-11 government finances benefitted from one-off items such as 3G spectrum auction, divestment and buoyant tax revenues. The projection of centre’s fiscal deficit at 4.6 per cent of GDP for the next fiscal year is clearly a positive given the absence of one-off items. The market borrowings estimate for the next year has come in lower than market expectations, despite the hike in social spending. However, progress on this front will need to be tracked closely as fuel subsidy burden could witness an upside in the current oil price environment.
The rupee had been under pressure due to FII outflows amidst ongoing increase in risk aversion owing to geopolitical tensions in the MENA region. The increased FII investment limits in the corporate bond segment (5-year paper related to infrastructure) augur well for both infrastructure financing as well as capital flows.
The economy continues to face headwinds in terms of inflation and rising global commodity prices. While the fiscal consolidation plans are commendable, we need to see if the assumption on revenues and expenditure would be in line with estimates. Until inflation tapers off meaningfully, RBI will continue to pursue monetary tightening. We expect debt markets to remain under pressure until then due to the various uncertainties.
Deepak Sood, CEO & MD, Future Generali India Life Insurance Co Ltd
The finance minister has addressed three crucial challenges of maintaining growth momentum, control of inflation and fiscal stability.
To increase the GDP growth from 8.6 per cent in the current fiscal to 9 per cent in 2011-12, the allocation has been significantly enhanced in infrastructure, health, education, agriculture and rural development amongst others. In order to control high inflation, supply side problems have been addressed through higher credit to agriculture & building of cold storage capacity.
Overall the budget is growth oriented and has a progressive outlook.
Rajesh Sud, CEO & Managing Director, Max New York Life Insurance Co. Ltd.
The Finance Minister has increased service tax burden on life insurance policies by increasing service tax rate on traditional plans and by changing the definition of service in the case of ULIPs. In ULIPs, where service tax was earlier charged only on mortality and fund management charges, it will now be charged on a portion of the premium other than what is allocated for investment. In case of traditional endowment plans, the service tax rate has been increased from 1.03 per cent to 1.545 per cent. Although the increase is marginal, this is not in line with our request for fiscally supporting long-term savings contracts such as life insurance.
Increasing the limits on life and health insurance premium could have provided great momentum for long-term saving instruments. Life insurance plays a critical role in providing long-term funds for infrastructure development by channelising domestic savings.
