UBS Says Investors Have ‘Priced In’ Modi Victory In 2019

Global investment and financial services firm UBS has said that many investors have priced in a victory for Prime Minister Narendra Modi in 2019 as the base case, reports The Financial Express. A report by the Zurich-based firm says that at least 50 investors based out of the United States and the European Union have done so and that they consider the outcome of the impending assembly elections in Karnataka as a “near-term sentiment indicator” for India’s political environment.

The firm says that India’s economic growth is expected to gather momentum in FY19 although widening macro-stability risks – inflation, fiscal deficit and current account deficit – are to be expected.

The firm says that India’s current account deficit (CAD) remains manageable with global crude prices at $75/barrel which is the country’s threshold and that with global crude prices gaining strength and heading toward $80/barrel, India’s CAD would widen. It added that a 10 per cent increase in global crude prices would see India’s consumer price index (CPI) inflation go up by 25 basis points along with a 3-6 per cent depreciation of the Indian rupee against the United States dollar.

The firm concluded by saying that due to India’s foreign exchange (Forex) reserves of $420 billion, India’s CAD could widen to up to 2.5 per cent of the gross domestic product (GDP) in FY19 but will remain below the 4.8 per cent that it had reached in FY13 during the UPA administration that caused the Indian rupee to be counted among the ‘Fragile Five’ currencies of the world.