The budget seems neutral for both equities but near term headwinds for bonds will remain as the market has already priced in long term capital gains, said investment bank Morgan Stanley. While policy makers have changed the glide path for fiscal consolidation, it thinks that the overall impact on macro stability will be manageable.
"We think that the market had already priced in long-term capital gains tax" said Morgan Stanley in a report. "Expenditure growth is budgeted modestly so we do not feel the need to lift earnings estimates"
There is an attempt to manage the oil price risk which could be supportive for market multiples, according to the American investment bank. "There is room for upside risk to farm incomes via higher support prices for the summer crop and hence we continue back rural plays.
Strong growth estimated for infrastructure continues to boost the case for industrials. The divestment target is more or less in line with expectations though the mix of public and private offerings is not known. We see the equity markets hinged to global outcomes in the near term while earnings growth will likely accelerated through 2018 and demand supply for shares gets tighter. We like corporate banks, infrastructure owners, discretionary consumption especially rural ones, domestic materials and software stocks