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Sense and volatility

The markets have responded maturely by focusing on the longer term benefits of adhering to the fiscal deficit target

 Rather than respond reflexively as it is wont to do, the stock market has taken a longer and more mature view of this year’s Union Budget. Trebling the levy of securities transaction tax on options trading and lack of sops to corporates haven’t deterred the marked from rallying sharply over the last two sessions, with the Sensex gaining over 1,000 points. This cheer is largely due to the Centre’s resolve to adhere to the fiscal deficit target of 3.5 per cent. Since the beginning of the calendar year, doubts about whether the Finance Minister would remain fiscally prudent in the face of the unavoidable hike in revenue expenditure due to the Seventh Pay Commission and OROP payouts had led the stock market to erode value. The Sensex lost around 15 per cent in January and February, a period when the decline in other global benchmarks was less than half that number. Indian equities were unable to participate in the global equity market rally in February, triggered by rise in crude oil prices. Foreign portfolio investors remained net sellers right through February, withdrawing close to $800 million. With the uncertainty now behind them, investors appear to be flocking back to Indian stocks.

With the Centre keeping a tight leash on its finances, the Reserve Bank of India, which has maintained that a further rate cut will depend on the government’s fiscal policy, may well lower the repo rate. A rate cut is just what is needed now to support shrinking corporate revenues and the demand boost from such a move can help arrest the deflation that is hurting companies. The market is also right in writing off the hike in securities transaction tax on options. After all, it is the cash segment of the equity market that contributes to capital raising; this segment will not be impacted by the tax hike. The cash segment in India has been stagnating over the last two years even as derivatives witness brisk action. There is evidence that derivative turnover in India has not been affected by hikes in the STT in the past. The market also appears to be relieved that the rules for computing long-term capital gains tax on equity transactions, despite speculation to the contrary, have been left untouched.

Interestingly, the markets weren’t spooked either by Finance Minister Arun Jaitley’s announcement that he would stay on course for the implementation of the General Anti-Avoidance Rules. Although a section of FIIs may like it to be deferred forever, the worries on this count have palpably reduced. At the same time, there is evidence that the pattern of FII flow into India is shifting, with inflows from Mauritius, which was at the heart of the GAAR move, making way for those from other countries such as the US and Singapore.


Important  Words from editorial with English and Hindi  meaning

  • deterred-  discourage (someone) from doing something by instilling doubt or fear of the consequence -  रोकना , डरा कर रोकना
  • prudent- acting with or showing care and thought for the future.- दूरदर्शी , विवेकी
  • triggered- cause (an event or situation) to happen or exist.- शुरू करना , सक्रिय करना
  • portfolio- a range of investments held by a person or organization.-श्रेणी , विभाग
  • flocking- move or go together in a crowd.-  अधिक संख्या में जाना ,  झुण्ड 
  • leash- a piece of rope, chain, etc. tied to an animal,-  पट्टी ,  रस्सी से बाँधना
  • deflation- the action or process of deflating or being deflated., reduction of the general level of prices in an economy- अपस्फीति 
  • derivatives- something which is based on another source., an arrangement or product (such as a future, option, or warrant) whose value derives from and is dependent on the value of an underlying asset, such as a commodity, currency, or security.-  दूसरी वस्तु से लिया हुआ, व्युत्पन्न
  • speculation- the forming of a theory or conjecture without firm evidence., investment in stocks, property, etc. in the hope of gain but with the risk of loss.- परिकल्पना, अटकलबाज़ी, अधिक भाव पर बेचने की आशा से माल मोल लेना
  • palpably- palpable. When something is palpable, you can touch or handle it, even though the word is often used to describe things that usually can't be handled or touched, such as emotions or sensations.-  स्पर्शग्राह्य, छूने योग्य 
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Editorial with Vocabulary