Friday, February 26, 2010

Good Budget

In balance, the budget was a good budget. I say it was a good budget for the following reasons.

1. The relaxing of the Income Tax slabs was a very welcome move. It puts in more money in the hand of the common man. More money means more expenditure. This will increase demands for goods and services.

2. No change in the Service Tax at 10 pc. This is welcome because the increase to 12 pc would have hit the common man. There should be other ways of generating revenue.

3. No tinkering with the Capital Gains structure. The new Direct Tax code and GST roll out as per schedule.

4. The hike in Excise duty of 2 pc means gradual rollback of stimulus. That would work wonders for our Fiscal Deficit.

5. Increase in excise on cars and petrol is welcome.

6. Banking licenses to be doled out. This is welcome news.

7. Roadmap for reducing public debt in 6 moths. This signals the intent to reduce fiscal deficit.

In the limited canvas, it was a good budget under the circumstances. The Markets should rally a bit to 5050-5100 levels. The further cues would be from the global markets as well the mega disinvestment of NMDC which should suck out 15000 crores.

I had got a question why markets would expire the Feb series around 4800+-50 points. It finally expired at 4858. Max Open Interest was at 4800. That means Puts written plus calls written at srike 4800 were more than at any other strike. Now, usually the big institutions and the market makers write the options. They would lose the least if markets expired around this strike. Thats what happened.

Today the Option writers made the money. The Puts were butchered and the Calls didnt increase in value.

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