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Home > Media > India Equity Markets May Rise 20% In 12 Months On Budget Take-Homes

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India Equity Markets May Rise 20% In 12 Months On Budget Take-Homes
Dow Jones Newswires
26th February 2010

India's equity markets may rise around 20% over the next 12 months after the investor-friendly federal budget provided a road map toward fiscal discipline and put more money in consumers' hands say fund managers.

India's Finance Minister Pranab Mukherjee said Friday in the federal budget that he would review public spending and mobilize resources towards building the productivity of the economy.

The Bombay Stock Exchange's benchmark Sensitive Index, or Sensex, closed up 1.1% at 16,429.55. The 30-stock index--which rose a whopping 81% in 2009 to record its biggest annual percentage gain in 18 years--has fallen about 6% so far in 2010 as investors booked profits amid the uncertainty ahead of the budget.

"Unless the global markets crack, a return of 15%-20% on the index is likely (over a year)," said Naresh Kumar Garg, chief executive of Sahara Mutual Fund. His views were seconded by six of the 10 fund managers contacted by Dow Jones Newswires.

Unveiling an INR11.08 trillion ($240 billion) budget for the year starting April 1, the finance minister said the government will curb spending growth and put more state assets on the block as it seeks to cut the deficit to 5.5% of gross domestic product from this year's 16-year high 6.9%, and to 4.8% the following year.

"This (lowering of fiscal deficit) would also improve India's sovereign standing in an increasingly uncertain international environment," said Sandesh Kirkire, chief executive, Kotak Mutual Fund. "The flow of capital into India should increase significantly on the back of this fiscal consolidation."

The budget has raised hopes of an aggressive divestment programme--usually cheered by foreign and local investors--and has laid down proposals that aim to grow domestic consumption at a time when the South Asian economy is on the path to recovery.

Signs that the government intends to tackle its large borrowing program is likely to boost exposure to banking stocks, especially those of state-run lenders, which will benefit from the proposal for the government to give an additional INR165 billion for capital infusion.

Nitin Jain, principal fund manager, Kotak Mahindra (UK) Ltd. said a controlled government borrowing could ensure that interest rates do not rise too much, which in turn could boost banks' credit growth.

"We're looking to increase our exposure to banking," he said.

David Pezarkar, head of equities at Shinsei Asset Management India, added, "We look to be incrementally positive on state-run banks post the budget."

Pezarkar said he is also positive on sectors such as autos and fast-moving consumer goods that are driven by domestic demand.

Mukherjee provided income tax breaks and restructured the individual tax ceilings to leave more money in the hands of people. He also announced hiking factory levies by a smaller-than-expected two percentage points, taking back some of the four to eight percentage points that was cut in 2008-2009.

Besides autos and state-run banks, fund managers are also keen on infrastructure--all three sectors are seen as the biggest beneficiaries from the budget's proposals.

The India Infrastructure Finance Company Ltd. will disburse INR200 billion of loans in the next fiscal year, more than double this year's estimated lending of INR90 billion.

"We will be prompted to raise exposure to the auto and infrastructure sectors," said Prateek Agrawal, vice-president and head of equity at Bharti AXA Investment Managers.

A rise in stock prices will need the support of growth in corporate earnings, he added.

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