RBI Policies May Turn Growth-Friendly On Possible Tight Fiscal Stance In Budget: Jefferies

The upcoming monetary policy committee meeting in February will likely "spring positive surprises," according to Jefferies. The brokerage said that the measure can take a growth-favoured approach. However, it's cautious on Budget 2025 given the possibility of slowdown in capital expenditure.

RBI policies can take a growth-supportive turn, especially with the government expected to take a tight fiscal stance on Feb 1, Jefferies said in a note. The recent move by the central bank to provide liquidity is a positive indicator, it said.

If the Sanjay Malhotra-led committee takes a potentially dovish stance on liquidity or rates, the rupee may depreciate further, Jefferies said.

"Our cautious view on the budget predicated on an expected slowdown in government capex." But the stock corrections largely build in those worries, it said. A high base in revenues and the government's firmness on fiscal consolidation will likely limit any significant spending growth, Jefferies said.

On the slowdown in economic growth, most of the reasons are temporary, Jefferies said. March quarter should be better with the significant underspending in eight months of fiscal 2025 expected to reverse over November 2024 to March 2025.

"While we believe that the govt shall not be able to meet the targets, a substantial uptick in the govt expenditure can contribute positively to the GDP growth," it said.

Further, a potential improvement in liquidity and regulations can prompt some uptick in the months ahead, it added.

The welfare spending pressures are rising and there are some expectations of a hike in corporate taxes. "If neither were to happen, the market may be relieved."

Balancing the trilemma of fiscal consolidation, capex-led growth or a boost to consumption and jobs will be tough, analysts at CLSA said earlier in another note. They foresee that India will curtail its capex spend.