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FM Arun Jaitley's Budget 2016 may well have paved the way for Reserve Bank of India (RBI) to go for a 50-basis point key rate cut this calender year, global financial services major UBS said in a research note. According to the report the Budget gives the RBI Governor Raghuram Rajan sufficient room to adopt a more accommodative stance. (Reuters)
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According to UBS, the Budget has given more preference to stability rather than growth and this should give more room to cut key policy rates. "We now expect 50 bps of policy rate cut in calendar year 2016 (from 25 bps) as the Budget should give RBI sufficient space," UBS said in a research note. (Reuters)
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Rather than opting for any growth-boosting stimulus, the Budget has stuck to the fiscal deficit of 3.5 per cent of GDP for 2016-17. However, the consolidation is of "poor quality", UBS said in the note, adding that "more than half the consolidation is due to divestment or telecom spectrum sales – this does not increase the pool of savings for the private sector, inhibiting growth". The global brokerage firm said it expects no acceleration in real GDP growth (7.4 per cent in 2016-17 as against 7.6 per cent in 2015-16). (Reuters)
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"We now forecast Nifty earnings growth of 10 per cent in 2016-17," it said. According to UBS, markets appear reasonably valued and some re-rating is expected, supported by likely 50 bps of rate cuts in calender 2016, which implies lower cost of capital. "Our revised end-2016 Nifty target is 7,500; our downside scenario implies a Nifty value of 6,500," it said, adding that the Budget is unlikely to alter the market trajectory and the global risk environment should drive markets near-term. (Reuters)
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