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Budget Summary, Tax Sop-Madness and More: The MarketVision Chronicle – Mar 05, 2011

On March 5, the MarketVision Chronicle, which I edit, talks about the budget, rants about tax sops and gives you all at MarketVision and in the outside world.

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Thoughts on the Budget

The budget was presented in full glory this week, and like Vallabh Bhansali said “The budget has become more of a TRP event than a GDP event”. The media have managed to get more from it than any other sector or industry.

What is usually interesting is to see what happens after the budget. Will the FM roll back some proposals? Will there be changes? How will the industry react? How will stock markets react?

Stock Markets have reacted positively, going up every single day since (Wednesday was a holiday). With the closing at 5538 today, the Nifty gained 4%. Among the heavyweights, the auto sector giants of M&M, Ashok Leyland, TVS Motors and Maruti are up 12% each, with the news that there was no news of an Auto excise duty hike. ITC is up 10% after there was no cigarette tax hike, an event that was more or less expected (even by me!). It seems the budget is more about what didn’t happen, than what really did.

A few other stocks that seem to have been missing from the public eye are KRBL (up 26% this week) which was battered down recently. Bajaj Finserv made a new high, going up 28% this week. Coal India was up 11% but that was on news that it will be hiking up coal prices by 30%. Some of these may not be budget impact, but they seem like good moves all the same.

Our Budget Posts and Articles:

Why do we bother with Zero Tax Policies?

As SEZ developers have now realized, tax-free statuses don’t last forever. The idea of an SEZ was to develop exports, and in order to do that we provided them a zero tax regime. Yet, that was dysfunctional – by restricting such tax-free statuses to SEZ units, you stopped the small and mid-size entrepreneurs from creating solid export businesses, because it was darn difficult to get into an SEZ. Or to get an SEZ license. Effectively we went back to the license regime, because you couldn’t compete in certain industries unless you were tax-free, and you couldn’t be tax free unless you were rich enough to afford a place in an SEZ and qualify.

The second stupidity of doing export-tax-free-policy is that local development suffered. If you could export tax-free, you would export. You wouldn’t build stuff for the local industry, because that gets taxed. Which is why the best software products in the world aren’t owned by Indian residents, even though we have some of the best software delivery processes in the world. We don’t even have a great India-wide software, with the strong exception of Tally, which richly deserves competition. It is only now that we’re coming back to our own in software, and it’ll probably take another decade to see software develop – both as a development and consumption play – in India. SOPs of the tax-free sort create serious distortions by incentivizing one type of behavior at the cost of another.

Editor’s Picks


A set of external links chosen from our daily updated Editor’s Picks section.

China Takes a Giant Step towards Making Yuan the World’s Reserve Currency (The Big Picture: Ritholtz Blog)

Today’s biggest piece of news received a mere two paragraph blurb on Reuters, and was thoroughly ignored by the broader media. “China hopes to allow all exporters and importers to settle their cross-border trades in the yuan by this year, the central bank said on Wednesday, as part of plans to grow the currency’s international role. In a statement on its website www.pbc.gov.cn, the central bank said it would respond to overseas demand for the yuan to be used as a reserve currency. It added it would also allow the yuan to flow back into China more easily.”

Yunus Removed as Grameen Bank’s MD (Business Standard)

Nobel laureate Muhammad Yunus has been removed from his position as head of microlender Grameen Bank, Bangladesh’s central bank said on Wednesday, following allegations of irregularities in its operations.

Index Investors are Evil Freeloaders: Or Why Vanguard Should Pay the SEC and Paulson Royalties (Byrne Hobart’s Blog)

Index investors are engaged in massive freeloading at the expense of active investors. Basically, professional money managers are driving themselves crazy—sometimes literally—in order to create a market efficient enough for lazy people to profit. And the lazy people make more.

Berkshire Hathaway’s Annual Letter 2010 (Berkshire Hathaway)

Always a great read.

Budget 2011: Changes in the Automotive Industry (The Economic Times)

With steel prices going down, the industry will benefit from strengthening margin lines as it will become cheaper to source finished steel from tier 2 & 3 suppliers.

 
Dubai Shares Slump to 7-Year Low, Lead Drop in Gulf on Saudi Risk Concern (Bloomberg)

Persian Gulf shares fell, sending Dubai’s benchmark index to the lowest in almost seven years, as worries over political unrest spreading to Saudi Arabia, the Arab world’s largest economy, sparked demand for safer assets.

We’d love your feedback! Tell us at chronicle@marketvision.in.

In need of some tax-sops,

Deepak and Shyam
The MarketVision Team
http://www.marketvision.in
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