Investors have priced in a “Modi win in 2019” as the base case and expect India’s economic growth to gain momentum in financial year 2018 – 19 (FY19), albeit with widening macro stability risks (inflation, current account deficit and fiscal deficit), suggests a recent report by UBS.
The report, authored by Tanvee Gupta Jain, UBS’ economist, also highlights the key near-term risks investors are concerned about. Investors, it says, have also questioned the trends in household savings and the local flows in the backdrop of demonetisation.
According to UBS, the threshold for higher global oil prices for India is $70-75 per barrel (bbl), wherein macro stability risks widen but remain manageable.
A 10 per cent average crude oil price rise could increase consumer price inflation (CPI) by around 25 basis points (bps), UBS says and would dent GDP (gross domestic product) growth by 30 bps if the fuel cost is passed on to consumers.
Building in the current oil price of $75/bbl, UBS pegs India’s current account deficit (CAD) at 2.5 per cent of GDP in FY19, but remain below the peak of 4.8 per cent of GDP in FY13.
“Our broad view is India may not see a balance-of-payment surplus in FY19, as it has seen in the past few years, but India’s forex reserves ($420 billion) seem reasonable, based on a reserve adequacy metric, to withstand volatility due to global risk aversion,” the report says.
Investors, according to UBS, are also concerned that the government could miss its fiscal deficit target of 3.3 per cent of GDP for FY19. The combined fiscal situation remains stretched on the risk of populist spending ahead of the 2019 elections, farm loan waivers by some states and rising oil prices.
Castrol India dipped 7% to Rs 181 on the BSE in early morning trade after the company reported single digit 2% year-on -year growth in net profit at Rs 1.82 billion in March quarter (Q4FY18), due to sharp rise in input costs. It had profit of Rs 1.79 billion in the same quarter year ago.
On a comparable basis without the change in indirect tax treatment, net sales in the quarter under review increased by 5% over the same period last year at Rs 92.7 billion driven by volume growth across categories.
Analysts on an average had expected profit of Rs 1.88 billion on net sales of Rs 95.7 billion for the quarter.
With the continued increase in crude oil price and depreciation of the Indian rupee there is likelihood of further volatility in the cost of goods, Castrol India said in a statement.
the stock was trading 5% lower at Rs 185 on the BSE, as compared to 0.33% fall in the S&P BSE Sensex. The trading volumes on the counter jumped more than five-fold with a combined 3.43 million shares changed hands on the NSE and BSE so far.
Castrol India was quoting close to its 52-week low of Rs 172 touched on February 2, 2018 on the BSE in intra-day trade.
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