No Big Bang, but India’s Budget sets positive tone: HSBC

HONG KONG – In an assessment of the first Budget delivered by India's new Finance Minister, Arun Jaitley's, HSBC describes the overall tone as positive, although there was no “Big Bang’. There was always a limit to what the Minister could deliver after only a few short weeks in office, HSBC said, adding that investors may need to rein in their expectations of how quickly the economy can be turned around. HSBC’s summary -

Economics: The Budget offers a few reassuring steps and, faintly, a taste of the types of reforms that the Government will need to deliver if 8% GDP growth is to be achieved in three years.

Equity strategy: The Government made a positive statement of intent with the right messages on manufacturing. This should keep sentiment in the equity market buoyant.

Credit: The Budget aims to improve the investment climate and is committed to fiscal consolidation. This is positive but the impact is difficult to quantify. S&P has said that it would look for a lift in growth rates to revise its negative outlook on the sovereign ratings.

FX: We expect the optimism surrounding the INR to remain intact, even though the Budget may not have exceeded expectations. Implementation details on measures to encourage FX inflows into local markets and RBI's FX policy will be near-term drivers for the currency.

Rates: There was not much in the Budget for bond investors to cheer about, except for the proposal on the international settlement of INR-denominated bonds. FY14/15 government bonds borrowing remains largely unchanged at INR6trn versus INR5.97trn announced in the interim budget. Yet, government bond yields and OIS rates are likely to remain elevated amid risks of a jump in inflation.
www.hsbc.com (ATI).