All Eyes on Indian Union Budget
Election setback on 10 February in the National Capital Territory of Delhi tarnished Modi’s aura of invincibility and could throw a wrench into promised reforms.
India Union Budget set to be unveiled on 28 February 2015 (Saturday) will be closely watched by investors and analysts for reform determination.
SGX CNX Nifty Index Futures calendar spreads exhibited strong trading interest as market participants shifted to March contract earlier to take position on the budget day. In conjunction with the onshore market, SGX CNX Nifty Index Futures contract will be available for trading on 28 February 2015.
Election Setback in Delhi
It was supposed to be a walkover. Fresh from previous election victories, with main opposition parties in disarray and popular Prime Minister Narendra Modi beside them, the Bharatiya Janata Party (BJP) was expected to cruise to a win in the Delhi state elections. But after the dust settled, the Aam Aadmi (Common Man) party had won 67 out of 70 seats in the state assembly of the Indian metropolis of around 20 million people.
It was a stunning setback for Modi and could prove a hindrance to his proposed reforms which will need strong support to pull off. Consolidating power in the states is critical to gaining control of the upper house Rajya Sabha, where Modi's party lacks a majority and has been thwarted in its effort to pass reforms, including the liberalisation of the insurance sector.
At the same time, the loss in Delhi also showed the electorate’s growing impatience for progress, which makes the upcoming budget all the more crucial. Widespread disappointment with the budget could lead to further losses on the electoral battlefield.
Investors Prepare for India Budget Day
The Nifty index has been recording higher highs as market participants buy into the rally on hopes that the 28 February federal budget will unveil a string of reforms to attract investment and balance federal deficits.
According to Jim O'Neill, economist and former chairman of Goldman Sachs Asset Management, Indian markets has to potential to rally 20-30% going forward, if the Budget meets expectations.
With Modi coming to power on promises of sustained GDP growth of 7 to 8%, voters and investors will be expecting drastic growth policies and reforms – anything less will be deemed disappointing.
The key theme for this budget will undoubtedly be economic development. At the same time, cutting the fiscal deficit and the central bank’s desire for further interest rate cuts will prove to be an important theme.
To curb the deficit, the government is considering alternative means of generating revenue, such as selling off state-owned companies and the auction of federal resources. Analysts expect the government to meet its ambitious 4.1% fiscal deficit target with the help of lower oil prices.
Elsewhere, investors will also be looking for policies that improve the infrastructure of the country so as to set the stage for attracting investment into the country. On manufacturing, Modi is expected to continue supporting the “Make in India” campaign. Changes in law and tax structures such as the proposed goods and services tax to encourage manufacturing growth are on the table.
Finance Minister Arun Jaitley will present the budget on Saturday and the Securities and Exchange Board of India (SEBI) has instructed domestic stock markets to be open for a live special trading session on that day.
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