Post Karnataka polls, UBS expects govt to push stimulus to boost rural economy as Narendra Modi preps for 2019 election

New Delhi: Global investors have priced in a "Modi win in 2019", and the government may consider various stimulus options to support the rural economy in the run-up to Lok Sabha elections next year, says a UBS report.

"Our discussions with investors and the market's multiples suggest that Prime Minister Narendra Modi winning 2019 is being priced in," UBS Securities Head of India Research Gautam Chhaochharia and Analyst Sanjena Dadawala said in a research note.

It further noted the government may consider various stimulus options to support the rural economy ahead of the general elections.

The note was published last week ahead of the counting of votes in the Karnataka elections.

Prime Minister Narendra Modi speaks during an election campaign rally ahead of Karnataka Assembly Elections, at Chikmagalur. PTI

File image of Prime minister Narendra Modi. PTI

According to the global brokerage, measures like minimum support price (MSP) hikes, price deficiency payment to farmers (done by Madhya Pradesh) and income support to farmers (done by Telangana), may be considered by the government.

Other potential ways could be through an interest rate subsidy, including zero-interest loans for farmers.

The report further noted that though the first 3-3.5 years of the Modi government saw a number of reforms and politically tough steps like demonetisation, GST implementation, bankruptcy code, the run-up to elections is unlikely to see any big bang measures.

The government's political economy stance into the elections will be a key driver of sector/stock relative performance and rural-exposed stocks should continue to do well, irrespective of whether the rural/agri tilt is "real or just rhetoric".

The report however noted that any major populism/stimulus would likely drive bond yields higher and possibly hurt the currency.

"We remain neutral on SOE banks. Our end-2018 Nifty base/ upside/downside scenarios of 10,500/11,900/8,800 imply an unattractive risk-reward for the market overall," the report said.

On job creation, the report said, the pace of job creation will increase if the government's policy push is successful.

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Updated Date: May 15, 2018 13:20:20 IST

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