Apart from this there is a high probability of EL Nino this year. Not only that, pressure on macroeconomic front viz; the recent Iraq crisis has further added to Government's woes. These features indicate that it will be difficult for the government to come up with high growth aspirations unless it takes some solid measures.
As per an article in The Hindu Business Line, in 2014-15, lot of expenditures have been carried forward from FY14. Plus there is also acceleration of receipts due in 2014-15 and booked in 2013-14. Hence, unless massive austerity measures are practiced, it will be difficult for the new government to to contain the fiscal deficit within 4.1% of GDP this year.
It would be interesting to see which austerity measures the government takes- whether it will cut more of its spending programme or increase the taxes. Thus the Budget will be a remarkable event from economic as well as from investment perspective.
We would wait and see whether the government plays a cautious role. This means not making many policy changes. This means to retain most of the key road blocks to growth of economy and find no remedy. Or will it be able to execute harsh measures like not giving subsidies, increasing taxes or increasing duties on various sectors and so on. This would result in mass discontent. We have already seen this recently when passenger fares and freight rates were raised, that also led to a roll back in hike.
This Budget will certainly be one event to watch out for in terms of long term upsides in equities. As far as investors are concerned, we believe they should not invest in stocks based on reform theme or with an anticipation that some exemptions or tax sops will be offered to a specific sector.