On the negative side is the modest increase in securities transactions tax. At the same time the emphasis on the development of corporate bond markets, OTC derivatives and the securitization market are clear positives. In addition the likelihood of increased FDI limits in specific sectors and the implementation of state level Value-Add Tax (VAT) are further positives.
Market implications - We believe the budget achieved a fine balance between higher spending needs and the objective of boosting growth. While a higher budget deficit target is clearly a negative for bond markets, low inflation and the likelihood that rates will be left unchanged near term should support sentiment. As a result we do not see yields rising significantly from current levels and expect benchmark 10-year yields to be no more than 50-75bps higher by March 2006 from current levels of 6.55%.
The budget should be neutral to modestly positive for the INR as it should help to sustain portfolio inflows, thus supporting a healthy balance of payments position. We continue to believe that broad USD weakness will persist near term. As a result, Asian currencies will remain firm against the USD and hence the bias remains for the INR is still for it to appreciate. We maintain our end-year forecast for USD-INR of 43.50.
Shuchita Mehta
India Economist, Standard Chartered
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Budget: India on the growth path (page 3 of 3)
- Tuesday, March 01 - 2005 at 10:50
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Daniel Hanna, EconomistTuesday, March 01 - 2005 at 10:50 UAE local time (GMT+4)
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