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What fund managers think of Modi's first budget

What fund managers think of Modi's first budget

The new Indian government presented its highly awaited Union Budget recently. In the eyes of foreign investors, it represents Narendra Modi's first major policy statement after taking over the reins of the country.

So did the Modi-led government's first budget impress fund managers? Citywire Asia canvassed some views:

Desmond Fu, portfolio manager, Western Asset Management

Expectations were high, for a budget that would simultaneously introduce policies that would promote growth while improving fiscal sustainability.

The budget sought to address both with a tilt towards what appeared to be the administration’s priority, delivering growth, given the plethora of focused measures supporting agriculture, infrastructure and urban development. 

The market should view this budget optimistically though with increasing expectations for announcements of further measures to boost growth and investment.

A commitment to fiscal sustainability and increase in FDI caps for insurance and defense would be supportive in the medium term for the INR.

The extension of the 5% withholding tax on bonds and the proposed plans for international settlement of INR bonds would continue to be positive catalysts for Indian bonds.

Matthew Vaight, emerging markets fund manager, M&G Investments

There are very high hopes for the new Indian government and share prices have risen sharply in anticipation of reform.

However, there is a difference between policies and delivery.

The hard work has still to be done and it is likely that changes will take some time to have an effect in boosting the economy.

While there are probably good reasons for optimism for the future as the government attempts to improve India’s financial position and stimulate development, we think many companies’ prospects are now reflected in their share prices.

We have been taking profits from our Indian holdings as we consider valuations expensive.

However, we remain optimistic about the long-term prospects of companies, such as some non-state owned lenders and mortgage lenders, particularly as the government has spoken about the need to increase home ownership."

Rana Gupta, India equity specialist, Manulife Asset Management

The budget focuses on two key areas: 1) being fiscally prudent by making progress on fiscal consolidation; and 2) providing incentives for infrastructure projects and capital investment. In our view, the budget delivers on both counts.  

We also see several positive steps taken towards removing bottlenecks, enhancing productivity and foster better governance.

This budget adds to our conviction that policy makers are addressing key issues to revive growth while working to contain India’s twin deficits and curtail inflation. While these are challenging tasks, we are optimistic regarding developments to date.

We have previously stated that the Indian economy was bottoming out before the election.

Now, with appropriate fiscal policies in place, we expect to see a gradual revival of investor sentiment and business confidence. We reiterate our conviction that India’s cyclical downturn is now firmly behind us and we believe we could be on the cusp of a structural economic upturn.

In our view, this further strengthens the case for investment in Indian equities.

While risk factors remain, such as the potential for a near-term shortage of rainfall and/or a substantial rise in global commodity/crude oil prices, we believe that such events would be largely transitory.

Avinash Vazirani, fund manager, Jupiter India fund

The new Indian government’s first budget is, in my view, extremely positive. The standout commitment for me is the retention of the 4.1% fiscal deficit target.

In my view it says that the government will keep borrowing in check and this is good news for interest rates down the line.

With valuations marginally above the ten-year average, an economy at the bottom of its current cycle and a huge number of positives set to come through as a result of the new government and budget, in my view there is still significant scope for further upside in equities in the medium to long term.

Earnings are set to increase, global funds are relatively underinvested in India and a study recently published by the Reserve Bank of India demonstrated that domestic financial assets as a percentage of overall household savings are at their lowest level since 1969.

Sandeep Kothari, Portfolio Advisor, FF India Focus fund, Fidelity Worldwide Investment

The key message has been the need for fiscal prudence and a road map has been laid out to reduce fiscal deficit to 3.0% of GDP by year ending March 2017.

A lower deficit is a positive as it would reduce inflationary pressures and support a lower interest rate environment.

FDI limit in the insurance and defense sectors has been raised from 26% of a company’s share capital to 49%.

This is a positive for private sector insurers such as Max India, and companies exposed to the defense sectors such as Mahindra & Mahindra, both of which are overweight positions in the FF India Focus fund.

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