India’s Sensex Forecast Raised at Macquarie on Budget (Update2)
By Reinie Booysen and Shiyin Chen
July 7 (Bloomberg) -- Macquarie Group Ltd. raised its April 2010 target for India’s benchmark stock index by 20 percent, saying markets “overreacted” yesterday after the government forecast its widest budget deficit in 16 years.
The Bombay Stock Exchange Sensitive Index may climb 28 percent to 18,000 by April, aided by the government’s “pro- growth budget,” analysts led by Seshadri Sen and Rajeev Malik wrote in a report today. They earlier predicted the index, which slumped 5.8 percent to 14,043.4 yesterday, would rise to 15,000.
The Sensex tumbled the most in six months after Finance Minister Pranab Mukherjee said the budget shortfall will widen to 6.8 percent of gross domestic product in the year to March 31, the most since 1994. Stocks also fell after the speech omitted measures such as an increase in the limit on foreign investment in the insurance industry as some analysts had predicted.
“The initial reading of the budget suggests that the local equity market has over-reacted owing to unrealistic expectations and ignoring the positive moves in the budget,” the analysts wrote. “The reform story stays in place.”
The Sensex rose 0.7 percent to 14,140.66 as of 11:40 a.m. in Mumbai. It remains 46 percent higher this year, making it the fifth-best performing market among the 88 tracked by Bloomberg globally. Shares surged 17 percent on the first day of trading after the Congress party’s biggest election victory in two decades in mid-May on speculation Prime Minister Manmohan Singh will revive Asia’s third-biggest economy.
‘Biggest Beneficiary’
Infrastructure is the “biggest beneficiary” from yesterday’s budget, the Macquarie analysts said, after the government announced spending of 1.79 trillion rupees on roads, telecommunication and power.
A reduction in taxes for individuals will also stimulate consumption, while the scrapping of a fringe benefit tax will provide a boost to employers, they added.
Axis Bank Ltd., Bharat Heavy Electricals Ltd., Tata Steel Ltd., Unitech Ltd. and Sterlite Industries (India) Ltd. make up Macquarie’s top picks in India.
“The budget is pro-growth and appears to be designed to ensure the improving momentum on economic growth even if it is at the expense of delayed fiscal consolidation,” the analysts wrote in today’s report.
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