>2009 UNION BUDGET (GOLDMAN SACH)

India: 2009 Union Budget—spotlight on infrastructure

■ The closely watched Union budget to be presented on July 6 will be important in gauging the new government’s policy stance. We think it will have a big focus on infrastructure.

■ We expect the budget to also emphasize low-cost housing, rural spending, and support for the exportable sectors.

■ Given the spending pressures, we expect the central government’s fiscal deficit to remain high at 6.5% of GDP and the consolidated deficit at 10.1% of GDP in FY10 despite a fall in oil and fertilizer subsidies. The deficit, we think, will likely be financed comfortably due to disinvestment and the auctioning of 3G license proceeds.

■ Consequently, we think that long bonds which have sold off recently in part due to concerns about funding the fiscal deficit, may rally.

■ We continue to expect the INR to strengthen over a 12-month horizon, and think that concerns over financing the fiscal deficit are overdone. Our 12- month target for USD/INR is 44.7.

■ Our sector analysts have outlined their expectations on the budget, and the impact on their respective sectors. We expect the budget to be positive for IT, capital goods, logistics, and financials.

To see full report: UNION BUDGET