Mahesh Nandurkar of CLSA says a combination of gains from demonetisation (estimate Rs 75,000 crore) and a partial relaxation of the fiscal roadmap should enable the Government to raise its overall spend by Rs 2 lakh crore YoY in FY18, i.e. the same jump as the last year.
This higher spend would only be an internal re-allocation of funds and not a net boost to the economy as the overall fiscal deficit should still reduce YoY, he feels.
He believes consumer staple companies, two-wheeler makers, Mahindra & Mahindra and cement producers should benefit.
A change in the definition of 'long term' for capital gains tax could impact sentiment for equities, Nandurkar says.
Meanwhile, Sakthi Siva of Credit Suisse says while demonetisation and high valuations may explain net foreign selling in India of USD 507 million over the past six days, Korea continues to attract the lion's share of net foreign buying of USD 655 million over the past six days.
She believes this resumption of net foreign buying admittedly tentative and in baby steps supports MSCI Asia Ex-Japan year-end target of 580 which offers potential upside of 12 percent.
As suggested in 2017 Outlook, she believes that Dollar Index strength and rising US bond yields at least partly reflect better US growth expectations rather than just risk aversion/rising inflation.
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