FY18 Budget expectation survey

Outlook Business conducted a market poll to get a sense of what the Street was looking forward, in terms of the Budget, overall economic growth, monetary policy and India Inc’s scorecard in the coming fiscal. At a time when the private investment cycle is down, the demonetisation move has proved to be a big dampener as it derailed the consumption bogey in the third quarter. Not surprisingly, a majority of the market participants believe the government will try to spend a lot more on infrastructure and other schemes to revive growth. In fact, majority believe the government might compromise on its deficit target of 3% to spur growth in the new fiscal.

Nearly 88% of the respondents expect growth GDP growth to be higher as the impact demonetisation eases off. However, a large part of the market section believes that it will take some more time for the private investment cycle to recover. They expect a pick-up towards the end of FY18 or beginning of FY19. Currently, most companies are operating 70-75% capacity utilisation.

Except a few contrarian views, majority of those surveyed feel telecom and IT are the two sectors that investors should avoid. In case of telecom, experts are not sure how the competition will play out post Jio’s entry. In the case of IT, they expect US’s protectionist policies to hurt revenue growth for major tier I companies.

With the US Fed expected to stick to its rate hike trajectory, experts believe the rupee to depreciate against the dollar in the FY18. Interestingly, 44% of the participants feel that rupee will depreciate to 72-75 levels, while 52% expect it to oscillate between 65 and 70 against its current levels of 68.

Close to 70% of participants of the survey expects earnings to grow at 10-15% in FY18, following a near-flat growth in the current fiscal. Assuming Sensex EPS of close to ₹1,500 in the FY17, a 10-15% growth in earnings would mean an EPS of close to ₹1,650-1,725 in FY18. In other words, Sensex valuations at around 16-17 times estimated FY18 earnings will be still cheap. This is precisely why 76% of the participants believe valuation is reasonable.

Never say die, seems to be the sentiment on the Street. Shrugging off its blues, 72% of the participants predict the Sensex will close higher at 30,000 levels by the end of March 2018, while some are projecting levels of 32,000, which is about 8-15% higher from the current levels.