Goldman Sachs: A Fiscal Boost For The Rupee

Goldman Sachs note that "India's budget statement revealed deficit projections that were significantly higher than expectations, and even accounting for one-off factors, spending is likely to ramp up significantly in coming months. The overall fiscal impulse to growth may be even larger than the headline numbers given the typically ambitious targets for disinvestment receipts. Local equities responded very positively to the announcements, which included outlays for infrastructure investment and the setting up of a "bad bank"; our equity strategy team continues to have an overweight stance on the market within Asia, and they continue to be long Indian banks as part of a basket of EM bank stocks in high-yielding EMs. The greater than expected fiscal impulse implies that there is less pressure on RBI to ease policy and erode the carry, and continued FX intervention is likely to keep volatility contained as well. If anything, our Asia economics team sees continued RBI interventions to offset strong foreign inflows into Indian assets as complicating the domestic money market picture and potentially distorting the forward curve, so we believe the possibility remains that the pace of intervention may slow, allowing USD/INR to grind moderately lower as well. All in all, we believe the carry-to-vol case to be long the Rupee, which was already compelling, has been further boosted by the recent fiscal announcements."