Union Budget and Market outlook

By: Amit Khurana, CFA, Head of Equities and Head of Research, Dolat Capital Market, and Director, IAIP

February 2, 2017

Budget 2017-18: 4G Budget…!!! (Gramin, Garib, Ghar, Gantavya)

 STABLE MACROS TO HELP SUSTAIN PREMIUM VALUATIONS

The Union Budget 2017 reflected the rural, agri, infra and focus on the poorer sections of the society for the Modi Govt. There was a marked shift of resources in favor of these sectors, and reflected also very well in the time the FM spent in his speech! No tinkering of any direct / indirect taxes, and expectedly so given the GST is on the horizon.. Essentially, the effort of the FM seemed to be to not do anything to create any negative perceptions (no touching the LTCG, no service tax rate hike, offering clarifications on CBDT circulars)

Overall, we feel the budget continues on the structural efforts of the Modi Govt to drive a structural shift in India’s economic trajectory. To the credit of the FM, he has resisted the usual urge to stray from fiscal control – so likely for a government which is about to enter its fourth year in office! From a 3% guidance last year for FY18 to now projecting 3.2% is credible given the pressures. We believe this move calms the bond markets as well as FIIs a lot – and will also aid at least a 25 bps rate cut by the RBI in the next policy due Feb 8th.

The FY18 shall witness some of these being implemented at the ground level – GST, push towards digital transactions, infra / rural spending, doing away with FIPB et al. Assuming global headwinds do not play the spoilsport, we expect FY18 earnings growth to hold towards mid to high teens, with the usual dispersion across sectors.

We expect infra, BFSI, cement and agri to be the key beneficiaries from the budget announcements, and outperformer from our coverage universe.

We also believe that given the stability in macros and likely acceleration in earnings in FY18 (base effect and better execution) will help India equities sustain higher than the last one year average valuations premiums.

This article has been reproduced from DART (Dolat Analysis & Research Themes) note

About IAIP

India Association of Investment Professionals (IAIP), which is established April 2005 and located in Mumbai, is an association of local investment professionals. As one of the 136 CFA Institute member societies, IAIP connects members to a global network of investment professionals. Consisting of portfolio managers, security analysts, investment advisors, and other financial professionals, IAIP promotes ethical and professional standards within the investment industry, facilitates the exchange of information and opinions among people within the local investment community and beyond, and works to further the public’s understanding of the CFA designation and investment industry.
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