With general elections barely a year away, investors have priced in a 'Modi win in 2019' as the base case, according to UBS, and investors in the United States and the European Union (EU) expect India’s economic growth to gain momentum in ongoing financial year -- 2018-19.
However, the Swiss financial services firm said that investors are concerned about a slew of issues including a sharp increase in global crude oil prices, the depreciating rupee and the NDA government's fiscal health ahead of the 2019 general election.
Global investors are also concerned that the government could miss its fiscal deficit target of 3.3 percent of GDP for FY19. The fiscal deficit has a bearing on the sovereign rating of a country as well as on the debt market.At current oil prices, UBS has pegged India's current account deficit (CAD) at 2.5 percent of GDP in FY19.
The UBS report, according to The Financial Express, said that India may not see a balance-of-payments surplus in FY19, however, New Delhi’s forex reserves, at $420 billion, seem reasonable, based on a reserve adequacy metric.
In February, UBS said that the optimism about the Narendra Modi regime's economic agenda helped investors brush-off weak corporate earnings. The Swiss firm had warned back then that "if portfolio flows slow due to election uncertainty or the recent rise in US inflation (and yield), then the rupee could come under pressure.”
Expressing the government's commitment to bring down the fiscal deficit, Finance Minister Arun Jaitley, in his Budget speech on 1 February, said that he had endeavoured to bring down the fiscal deficit from 4.1 percent in 2014-15 to 3.9 percent in the following year and to 3.5 percent in fiscal 2016-17.
Updated Date: May 08, 2018 18:46 PM