>INDIA MARKET STRATEGY (UBS)

A Dream Budget? ? Unlikely, in our view

■ Rural & Infrastructure thrust likely
The central government Budget will be announced on 6th July 2009 for year ended March 2010. Given UPA’s pro-rural policies, Budget may give impetus to rural spending programmes especially given late monsoons. We believe the budget will provide a clear roadmap on infrastructure investment. Other key announcements could include 1) Hiking FDI/FII limits in insurance & retail 2) Roadmap for PSU divestment.

■ Fiscal concerns likely to dampen Budget FY10
We believe rising fiscal deficit remains a key concern for FIIs investing in India. While the FY10 budget may do very little to bring down the fiscal deficit in the near-term, we expect a road-map that is likely to target much lower fiscal deficit in the medium term (3-5 years). Some key issues are 1) Setting revised FRBM targets 2) Setting a clear timeframe for implementation of GST. 3) There could be some relief in personal taxes. We believe the government is unlikely to decontrol oil
prices (fully or partially) due to lack of political consensus on the issue

■ Maintain our positive view on the Indian market over medium term
Over the medium term, we believe fundamentals and liquidity are likely to support higher valuations and maintain our March 2010 Sensex target of 16,750. We are overweight on banks, autos, cement, IT Services, telecom and real estate. We have also allocated 5% weight to Cash in our model portfolio. We are underweight on petrochem, metals, engineering, conglomerates and oil & gas. Key overweight stocks in our model portfolio are BoB, Infosys, Tata Power, Bharti, & Union Bank.

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