• Reigning in India’s Government Deficits: Fiscal consolidation is a strong takeaway from the Indian budget. The government intends to reduce its deficit from 4.1% to 3% by 2016–17, and an important step in achieving its target is to deregulate diesel and gas prices and reduce subsidies in the current fiscal year. As a result of deregulation, the oil and power (Energy sector) companies may stand to benefit from a continued hike in diesel and gas prices.
• Overhaul of Complicated Tax System Still Pending: One of the policies much discussed ahead of the budget was a reform of the tax system, which is quite complicated and includes both state and national taxes. A comprehensive goods-and-services tax (GST) that was alluded to would apply one national tax and remove the ability for states to levy their own taxes. This is one big policy that I hope to see come to fruition over next few years, as it could encourage a more efficient allocation of resources in the economy.
While this budget has no single magic bullet that will accelerate growth in India, it does address many of the key issues India faces. When markets appreciate as much as India has in a short period of time, I believe it becomes more important to employ a disciplined investment approach that focuses on relative valuations. The WisdomTree India Earnings Index will rebalance its holdings—as it does annually—in September. The tilt to low price-to-earnings (P/E) ratio stocks at the last rebalance has been one of the prime drivers of returns this year.
With Modi improving sentiment and valuations, I believe that India remains an attractive place to invest, and the steps taken in the budget reaffirm this outlook.
1Source: WisdomTree, Bloomberg; India ranks eighth out of the 23 countries in MSCI Emerging Markets Index.
Important Risks Related to this Article
Investments focused in India are increasing the impact of events and developments associated with the region, which can adversely affect performance.