Stocks should rise after budget 2012-13 additional 33 Billion USD flowing into Indian market

Just the fact that govt is giving 50,000 additional tax incentive for investment for long term in stock market should see the NIFTY reach 5584 level. here is the lowdown.

Indian tax payers are close to 3.3Cr assuming everyone takes the 50,000 tax rebate for stock market investment .. this should itself see additional cash infusion into the market of  50,000 x 3.3Cr = 1,65,000Cr which is 1,65,000/5000 = 33 Billion dollars.

- this 50,000 investment is going to have a long term tenure 3+ yrs which means the money will stay invested fixed in one stock and will not increase trading.

- Most investments are concentrated in top 50 companies. 

Sum Total Market Cap. of top 100 companies (by market cap) is 48,23,754Cr

(there total market cap in the table is 47,17,515 which is about 1,06,239Cr This is due to the fact that market has fallen in post budget trading)

Assuming all the money will be invested in top 100 companies then market cap of top 100 companies will rise to  48,23,754+1,65,000 =  ie an increase of 3.4%

- Assuming NIFTY which is actually just 50 stocks and is currently at 5400 levels.. we can expect the NIFTY index to also rise by 3.4% which means we can expect nifty to reach 5583 just on the basis of tax incentive announced by the govt in budget 2012-13.

- Also we must remember that India is going to be the country of the largest youth population in the world by 2020 which means we will see consumption/income/investments rise and hence stock market index will also rise.

- Fiscal deficit is also expected to reduce.. which means more money for pvt players .. and lower interest rates.

I think the govt is taking steps to encourage investors to enter the equity market on a long term basis.. with govt/public pension schemes also investing in equity we should see a flood of money into quality stocks..

Note: In the days after budget the market (index) has actually lost value.. I would say..
- People are waiting to invest for next year ie. investments will rise after April1,2012.
- Since investments are going to be with a "lock in period" of 3 yrs we can also expect investments to be targeted at long term value stocks rather than momentum short term stories.
- Keeping in mind that the income tax deduction is 50% ie income reduces by 25,000 and hence extra money in pocket for 10Lakh income is 20% of 25,000 ie 5,000 which means you get the stock at 10% discount.(if you invest after April 1,2012)
- As already calculated this will result in additional money equivalent of 33Billion USD into indian equity markets

Our Best Picks GAEL, Jayant, NHPC and Tata Comm are all deep value buys which can take advantage of the opportunity for growth in Indian Economy..  Be invested and Be long term invested in the market and invest that 50,000 after  April 1, 2012