Mumbai: The forthcoming Union Budget would be a difficult one because the government will need to give clear guidance on fiscal sustainability, a leading banker said here.
"The budget will be a difficult budget because government will need to give clear guidance on fiscal sustainability, given the fact that we have a very high fiscal deficit as well as likelihood of rising government borrowings," Rabo India Finance`s Managing Director, Nalin Kumar said at the `Profit from knowledge` conclave organised by MKS Education and Research here.
The Government will also be hard pressed to deal with inflation and interest rates in 2010, the leading banker said.
The forthcoming budget and monsoon are the two main triggers expected to impact the stock markets in the near future.
As the government borrows more, it puts more strain on fiscal situation, Kumar said. The Reserve Bank of India (RBI) and government will be hard pressed to deal with inflation and interest rates, he said.
"Things may look lot better if we have good monsoon this year, because not only it will contain inflation but also provide policy makers some relief space to bring more prudent policies to encourage investment growth," Kumar said.
The Indian stock market may face key issues like asset inflation, infrastructure bottlenecks and global geo political issues in 2010.
However, the long term prospects for the Indian economy are bright because of strong domestic consumption, high saving rates and deleveraging of corporate sector and sound financial system well managed by the Reserve Bank of India (RBI), he said.
There are many areas in which government can take steps to liberalise. There is lot to be done in sectors like financial services, insurance and retail, which are expected to be opened up at some point of time, Kumar said.
In 2009, Nifty Sectorial weightage index was dominated by financial services, energy sector, telecom and IT sectors.
The foreign institutional investors (FIIs) may continue to invest in India during 2010 due to handsome returns in Indian markets.
"FIIs flows will continue towards India, however, the challenge will be to manage this flow," Kumar said, adding that hopefully we don`t get into 1995 kind of situation where we had to tighten monetary policy to make sure we do not have foreign induced inflation.
The primary market is expected to remain robust in 2010. The corporates raised Rs 50,000 crore in fiscal year 2008 and 2009.
"The primary market is likely to provide investment opportunity to investors as several PSU companies are expected to divest shares in 2010," Kumar said.