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MOSL: Morning India (26/April/18): 1. Economy (Thematic); 2. Automobiles; 3. Wipro; 4. Bharti Airtel; 5. UltraTech Cement; 6. Bharti Infratel; 7. M&M Financial; 8. LIC Housing

MOrning India (26/April/18): 1. Economy (Thematic); 2. Automobiles; 3. Wipro; 4. Bharti Airtel; 5. UltraTech Cement; 6. Bharti Infratel; 7. M&M Financial; 8. LIC Housing

 

Today’s top research theme

Economy: Fiscal policy has reached limits; Combined analysis of center and states’ budgets suggests so

In this note we analyze the 2018-19 budgets of 20 major states, which account for ~93% of GDP and ~95% of total spending by all states. Key highlights are:

• Notwithstanding general elections in 2019, real spending of the general government (center + states) is budgeted to slow down to 6.6% YoY in FY19 versus an average growth of 9.1% in the previous three years. Historical analysis of the spending patterns during election years since late 1990s suggests their linkages with election results.
• GST implementation has brought immense optimism to the general government, which has budgeted record-high taxes of 18.7% of GDP for FY19, better than 17.6% in FY08. Spending, however, is budgeted to grow moderately, due to which the combined fiscal deficit is budgeted at 5.7% for FY19.
• After a decline in capital spending in FY18RE, fiscal capex is budgeted to grow 11.6% YoY in FY19, similar to 11.3% growth budgeted for core revenue spending. If so, the contribution of government spending (consumption + investment) to real GDP growth is set to fall further in FY19. Consequently, we peg our real GDP growth forecasts at 6.9% for FY19, better than 6.7% in FY18, but lower than the consensus of 7.3-7.4%.

Piping hot news

Rupee falls to 14-month low, edges closer to being worst hit among Asian peers

• The Indian rupee on Wednesday edged closer to becoming worst currency of Asia in so far 2018 after foreign investors continued to sell in the local equities and bonds amid a surge in international crude oil prices and US bond yield. Currently, Philippine Peso is the worst currency as it dropped 4.6% while rupee declined 4.52% so far this year. The currency closed at a 14-month low against US dollar.