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Budget 2019 may raise PM Modi's hopes of coming back; Nifty target at 10K for December: UBS

Policy space for any new government after the Lok Sabha elections to address capex driven growth will be constrained, given this budget and recent promises by Opposition parties, the UBS report suggests

February 03, 2019 / 12:16 PM IST


The Interim Budget which was slightly tilted towards giveaways terming it to a populist one just ahead of elections may have raised market's hopes that Prime Minister Modi will be re-elected, though the link between populist measures and election outcomes is not clearly evident historically, UBS said in a report.

"The policy space for any new government after the May elections to address capex driven growth will be constrained, given this budget and recent promises by opposition parties," UBS said in a report authored by Gautam Chhaochharia and Tanvee Gupta Jain.

The global investment bank maintained its Nifty base case of 10,000 for December 2019, and remain selectively overweight on consumer discretionary and neutral on autos. It remains underweight on industrial/infrastructure sectors.

For autos, the budget will support entry-level two-wheelers, especially in rural areas, but will unlikely benefit premium bikes, MCHV and tractors.

The headline fiscal deficit does not signal major loosening, and there are hopes that giveaways will aid both rural and urban consumption.


The government estimates the FY20 fiscal deficit at 3.4 percent of the Gross Domestic Product (GDP), which is a deviation from the earlier 3.1 percent projected in the medium-term fiscal policy statement last year.

It assumes revenue growth of 14 percent YoY (20.5 percent YoY in FY19 (revised estimate) and 8 percent YoY in FY19 YTD). The government continues to rely on tax buoyancy, including from the Goods and Services Tax (GST).

Slowing capex is a concern, highlights UBS. The overall capex is projected to grow 6 percent on a YoY basis in FY20 (vs 20 percent in FY19), reflecting deteriorating spending quality and a skew towards social welfare spending.

FY19 capex for railways, roads, defence and metro grew 23 percent YoY (driven by roads), missing the target by 1ppt; budgeted growth in FY20 for these four sectors is 13 percent YoY, led by Railways, while FY14-19 growth was 18 percent YoY.

Bond yields reacted adversely after the Interim Budget and the large social spending could push the Reserve Bank of India (RBI) in changing its stance to neutral, said the investment bank.

Gross market borrowing of Rs 7.1 trillion was much higher than the market expected, and the bond market reacted adversely to this news. UBS is of the view that RBI is cognizant of the risk to inflation from fiscal slippage.

The central bank is likely to keep rates on hold in the upcoming policy review on February 7. UBS also expects a change in its policy stance from "calibrated tightening" to "neutral".

Disclaimer: The views and investment tips expressed by investment expert on are his own and not that of the website or its management. advises users to check with certified experts before taking any investment decisions.
Moneycontrol News
first published: Feb 3, 2019 08:48 am

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