What the Budget Means for the Rebirth of India - The 5 Minute WrapUp by Equitymaster
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What the Budget Means for the Rebirth of India

Feb 1, 2019

Tanushree Banerjee, Editor, The 5 Minute Wrapup

2019 is a crucial year for the Modi government: It is the year of general elections.

Will the Modi magic help the government get elected for another term? Or is the Modi euphoria fading?

But before we get to that, it would be safe to say that 2018 was a particularly challenging one for the government.

Global oil prices soared for a larger part of the year until October. This took its toll on the rupee, which lost around 15%. It was one of Asia's worst-performing currencies.

Then in the month of November, five states of Rajasthan, Chhattisgarh, Madhya Pradesh, Mizoram, and Telangana went to the polls, with the BJP not emerging victorious in any and the Congress gaining the upper hand in three states.

So the outcome of the general elections is bound to influence the movement of the Indian stock market.

But today, let's talk about the Budget.

Typically, Budgets presented in the year of elections do not carry as much weight as the other Budgets. After all, it does not make sense to make spending plans when you don't know if you will be in power to carry them out.

But that didn't stop the government from announcing the transfer of Rs 750 billion to farmer's bank accounts.

Then there was the pension scheme for the unorganised sector that grabbed the headlines.

And of course, tax relief for the middle class which will give a boost to consumption.

From the market's point of view, this was as good as it gets. There was no major disruptive announcement. The minor slip up in the fiscal deficit target was largely expected and the market brushed it aside.

The market will probably now take cues from global markets which are rallying after the US Fed's dovish stance on interest rates.

All things considered, the short-term looks good for the market.

That said, I strongly believe this Budget should not be the yardstick by which you chart your investment portfolio.

What matters are the big long-term trends that will greatly support India's growth story.

These trends will go a long way in powering the Sensex to 100,000.

I was not surprised the Finance Minister spoke about some of the 50 irreversible trends I've identified - road construction, tourism, Jan Dhan, Aadhar, RERA, startups, increased tax collections...and more.

You see, it is not short-term events like the Budget that will decide India's future. Rather the 50 irreversible trends will drive a historic transformation that I call the Rebirth of India.

Chart of the Day

One way of gauging the government's financial health is by looking at the fiscal deficit as a percentage of GDP.

The good news is that this number has been declining.

Thus, it has been in line with the government's stated aim of bringing the fiscal deficit down.

Now the Finance Minister has chosen to present a populist Budget, will it mean that the deficit percentage will go up?

Will the Deficit Continue Declining?

Warm regards,

Tanushree Banerjee
Tanushree Banerjee (Research Analyst)
Editor, The 5 Minute WrapUp

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