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No big bang but positive steps: top managers on India’s budget

No big bang but positive steps: top managers on India’s budget

India's new budget appears to have pleased global investors through a series of business-friendly measures aimed at attracting greater investment for the economy.

Finance Minister Arun Jaitley announced an unprecedented corporate tax cut, postponed the fiscal deficit target of 3% by a year and said capital spending will grow 25% versus only a 3% increase in current spending.

Meanwhile, in the hotly-watched budget announcement, which was viewed as an indicator of Prime Minister Narendra Modi's economic ambitions, Jaitley also proposed major benefits for the poor, introducing a universal social security scheme.

Against this backdrop, Citywire Global has collated the views of three leading fund managers on their snap response to the budget outcomes and what investment opportunities it could present.

The power of consistency

Teera Chanpongsang, Citywire A-rated manager of the Fidelity South East Asia fund, believes the budget is in line with the government’s policy direction – a direction that has been consistent since Modi was elected.

‘Overall, I think it was a good budget as the government has made it clear that they need to stimulate infrastructure spending. Additionally, the clarification of the General Anti-Avoidance Rules and the planned introduction of the goods and services tax are positive developments. A key message is that the government is focusing on economic growth whilst maintaining fiscal discipline.’

‘I believe that India is on the path of strong economic growth over the coming years. A recovery is expected to be underpinned by improving investment cycles, strong domestic consumption and ‘ease-to-do business’ government initiatives. Looking forward, India is forecast to post one of the highest GDP growth among Asian countries.’

A constant drip of reforms

Citywire A-rated Kunal Desai, Neptune’s head of Indian equities, thinks the budget is promising for growth and decentralisation even though it doesn’t contain ‘big bang’ reforms.

‘Some may be initially disappointed that bolder steps were not taken. However, the finance minister highlighted that the budget day represents just a single day out of a full year when reformist steps can be taken. Indeed, we believe that this is one of the most attractive features of the Indian market: the reform agenda is being characterised by a constant drip of reformist action rather than short periods of hyperactivity.’

‘The plan for recapitalising state owned banks came under expectations, which strengthens our preference for their private peers. Infrastructure, defence and a number of rural consumer-facing companies will likely benefit from many of the budget details too. The Neptune India fund’s positioning continues to favour mid-cap companies, alongside domestic cyclicals.’

Only the first chapter

Mike Sell, Alquity Investment Management’s head of Asia, said this budget reinforces his strongly positive view on the Indian economy, but more could have been done to boost consumer sentiment.

‘Overall, if we were forced to score, we would rate the budget 8/10. India accounts for 20% of our Asian Fund, and our Indian Subcontinent fund is heavily positioned in pro-growth sectors rather than software and pharmaceuticals - which has been “the” story in India over the 20 years I've been investing in the market, but is not the “next” story.’

‘Whilst a feel good factor has been created for the corporate sector, more could have been accomplished to boost weak consumer sentiment. Nevertheless, this is one of the most powerful stories in the entire emerging markets asset class, and we have only reached the first chapter.’

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