The Narendra Modi government is expected to propose a pro—growth budget focused on tax reforms, lower subsidies and asset sales, global financial services company Barclays said.

“Given the pro—growth credentials of Narendra Modi, the new Prime Minister, expectations of administrative and policy reforms are high. We expect the first test of this to come in the government budget announcement. We expect the government to propose a pro—growth budget focused on tax reforms, lower subsidies and asset sales,” Barclays said in its India Equity Strategy report here.

While it does not expect a quick turnaround in private sector capex growth, it believes that asset utilisation should rise, which should lead to improved Return on Equity (ROE) for corporates; and balance sheet leverage should moderate, with an improvement in cash flows, it said.

Barclays said Indian equities have had a strong first half. While it is positive over the medium term of three years, Barclays expect Indian equities to consolidate over the next six months as fundamentals play catch—up with valuations.

On the positive side, Barclays believes that quick resolution of various policy issues like coal allocation norms, land acquisition bill, national level GST or administrative issues like environmental clearance, taxation disputes could lead to a sharp rally in cyclical stocks.

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