India Union Budget 2017-18: ‘Futuristic’ government plan boosts Indian markets

by Excel Funds

India Union Budget 2017-18: ‘Futuristic’ government plan boosts Indian markets

Delivering his fourth annual budget, Finance Minister Arun Jaitley, presented a plan designed to lower tax rates and further invigorate domestic consumption. Lending his support, Prime Minister Narendra Modi described the Budget as ‘futuristic’ with a specific focus on job creation, economic transparency, urban rejuvenation and rural development. Indian stocks rallied following the news, with the BSE Sensex Index and Nifty 50 adding 1.76 percent and 1.81 percent, respectively at market close on February 1, 2017.1

Budget Highlights:

  • Income tax cut for middle-class individuals to a rate of 5 percent (from 10 percent)2
  • Proposed tax breaks for small and medium-sized businesses (SMEs), from a rate of 30 percent down to 25 percent
  • International organizations such as the IMF and World Bank still view India as the growth engine of the world; growing faster than all other major economies over the next two years
  • Impact of demonetisation will be transitory, and the effects are not expected spill over into 2018, per Finance Minister Arun Jaitley
  • Central bank monetary policy to be expansionary in the coming fiscal year
  • Foreign direct investments (FDIs) increased by 36 percent, while forex reserves stood at US$361 billion for the month of January2
  • Increase of ₹3.96 trillion (US$59 billion) in infrastructure spending to build and modernize railways, airports, roads and ports3
  • Inflation has largely been controlled by the Reserve Bank of India

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In its recently passed Goods and Services Tax (GST) bill and the demonetisation program launched in late 2016, India has implemented two bold policies that have laid the foundation for strong economic growth going forward. This Union Budget aims to speed up the country’s development even further by lending a hand to rural inhabitants such as farmers, and small business owners which drive a large part of GDP expansion in India.

The biggest stock gains of the day were seen in the autos and fast moving consumer goods (FMCGs) segments of the market, as it was seen that these sectors would gain the most from the income tax cuts for middle-class citizens, while several infrastructure names also performed well. Maruti Suzuki India Limited, one of the country’s primary auto manufacturers and a top ten holding of the Excel India Fund as of December 31, 2016, rose 5.5 percent.3 NCC Limited, a medium-sized construction company, and major holding in the Excel New India Leaders Fund, also traded higher, adding 2.5 percent, reacting to the proposed tax break for SMEs.3 Meanwhile, Tata Motors Limited, a core equity holding of the Excel India Balanced Fund, gained 4.3 percent.3 Milk producers and dairy stocks, which fall into the basket of FMCGs, traded higher as the budget included a proposal to set up an ₹80 billion (US$1.2 billion) fund for dairy processing infrastructure. Financial stocks also had a strong showing as the government proposed injecting at least ₹100 billion (US$1.5 billion) of capital into state-owned lenders.4 Financials and consumer discretionary are top sector allocations in all three aforementioned funds.

Overall, rising stocks outnumbered declining ones on the India National Stock Exchange by 1,078 to 402 and 73 ended unchanged; on the Bombay Stock Exchange, 1,893 rose and 878 declined, while 94 ended unchanged.5

Excel Funds offers on-the-ground access to India, through three actively managed strategies that invest across the entire spectrum of the Indian market. The Excel India Fund, a large-cap focused mutual fund, that aims to generate alpha by targeting high-quality stocks that trade just outside the major index; the Excel New India Leaders Fund, a benchmark agnostic strategy that invests primarily in high-quality small and mid-cap names; and the Excel India Balanced Fund, an income and growth product that holds Indian corporate and sovereign bonds. The Excel India Balanced Fund is one of the only funds in the Canadian marketplace that offers exposure to Indian fixed-income.

A positive and balanced 2017-18 Union Budget shows India staying the course of fiscal responsibility while concentrating on spurring development and consumption. India’s domestic growth story remains very much intact, with opportunities existing in sectors such as consumer discretionary, autos, infrastructure and financials.

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1 Bloomberg, Asia Stocks Rebound from Losses as Mining Losses, Indian Shares Advance, January 31, 2017.
2 India Times, Here are the highlights of Union Budget 2017, February 1, 2017.
3 Bloomberg data, total annualized return, in CAD terms, as at February 1, 2017.
4 Bloomberg, Good News for Banks and Farmers, Bad News for Drug Makers in India's Budget, February 1, 2017.
5, India stocks higher at close of trade; Nifty 50 up 1.81%, February 1, 2017.

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The information contained in this article is for informational and illustrative purposes only and is not intended to provide specific financial, investment, or other advice to you, and should not be acted or relied upon in that regard without seeking the advice of a professional. Particular investments or trading strategies should be evaluated relative to each individual.