The Union Budget is going to be a “market-neutral” event as policymakers are not likely to change their policy stance and will continue to focus on fiscal consolidation, says a Morgan Stanley report.
“We do not expect major changes in the conduct of fiscal policy and hence, view the budget as a market-neutral event,” Morgan Stanley said in a research note.
The Union budget for 2017-18 is due to be presented on February 1.
According to Morgan Stanley India Strategist Ridham Desai, the budget’s influence on short-term market performance is declining.
“Market participants will have to deal with a fair amount of volatility on the budget day though even this volatility has been declining over the past 25 years,” Desai said.
Sector-wise, the budget is expected to be positive for autos, cement and metals, consumer, Internet and e-commerce, media and real estate.
For sectors like financials, information technology, oil and gas and utilities, budget proposals are expected to be neutral.
The report said the pace of fiscal consolidation will be slower than what was planned earlier as the support from higher fuel taxes wanes and the government will find it difficult to cut back aggressive spending post demonetization.
According to the global financial services major, the central government is expected to target a fiscal deficit of 3.3% of GDP in 2017-18 as compared to 3.5% of in 2016-17.
Going forward, “as the impact of the currency replacement programme fades, the economy will return to a path of gradual recovery, led by improvement in consumption, public capex and a reduced drag from external demand”.