Market Outlook
With government’s disruptive reforms, including
demonetization and GST, behind, corporates are expected to post strong
earnings in the upcoming quarters. The reforms in subsidy distribution
have helped state-owned enterprises to operate and compete on a parallel
ground. Crude is dragging other commodity prices northwards, however,
we are expecting the run up to last for the first quarter of 2018 before
shale gas makes a material contribution in global inventories. Budget
2018 is expected to focus on agrarian economics including higher
allocation for irrigation, favourable policies for fertilizers,
affordable housing and banking focusing on rural development. Government
targeting higher borrowing of Rs.50,000 crores in the current fiscal is
driven more by a shift towards GST, partly by long term imbalances.
India
has been on a prudent fiscal path since FY15. The government resolved
to lower fiscal deficit (from the highs of 4.9% of GDP) and strengthen
country’s balance sheet since its first budget in FY15 and was able to
achieve targeted number for the two years despite various competing
challenges. For the current financial year, the government has already
utilised 96% of targeted value and is eyeing additional borrowing for
last quarter. The current year fiscal slippage in part can be attributed
to the measures of demonetisation, GST implementation, PSU recap, all
as a part of long awaited reforms. However, it is also evident that
large part of the deficit is on account of the fiscal push on capital
expenditure related to Infrastructure spending, which is a positive sign
and long-term growth supportive adding to GDP numbers.
Though GST
effect on revenue streams would slightly negative for one or two
quarters, it is likely to prove to be a game changer going forward
boosting revenues in a big way and supporting fiscal consolidation at
the general government level. We expect any overblown fiscal concerns in
the market would provide an opportunity to pick investments. This year
fiscal slippage is expected to be around 0.3%, while we expect
government to continue with its consolidation plan in next budget as
well shunning away any populist measures. The progress thereby is much
adherent and providing persistent economic growth.
10 Jan 2018, 08:49 AM