E
CO
S
COPE
1Q2019: India’s Quarterly Economic Outlook
Combination of weak growth and lower inflation hints at rate cut(s)
16 January 2019
The Economy Observer
After witnessing extreme volatility in mid-2018, the financial markets were relatively calm towards the year-end,
despite the unexpected loss of the BJP in three major state assemblies. The NIFTY index grew over 8% YoY (and ~5%
QoQ) in 3QFY19 (or 4Q2018), while the benchmark bond yield declined from over 8% at Sept-end to 7.5% currently,
and the Indian Rupee (INR) corrected from ~74 against the US Dollar (USD) to sub-70.
The volatility in crude oil prices has certainly aided these movements. When compared with our
Oct’18 QEO,
we have
retained our growth forecasts but sliced inflation and current account deficit expectations. Further, with the
materializing of weak growth and lower inflation in 2HFY19, we believe the Reserve Bank of India (RBI) could deliver
one or two rate cut(s) amounting to 25-50bp in early 2019. This hinges on the assumption that the government will
resist expensive populist schemes ahead of the 2019 general elections and maintains a path of fiscal consolidation.
What has changed since the
Oct’18
Quarterly Economic Update?
Real GDP:
After posting record high growth (in eight quarters) of 8.2% YoY in
1QFY19,
real GDP growth decelerated sharply to 7.1% in
2QFY19,
which was a
negative surprise to market participants, but in line with our non-consensus
expectation. Accordingly, negligible revisions were made in our growth forecasts –
at ~7% each for FY19 and FY20.
We have revised down our
full-year FY19 forecasts
again, from the earlier 4.1%
to 3.6% currently
CPI inflation:
The headline CPI-based inflation has been the biggest surprise this
year. With six successive lower-than-expected readings, we have revised down our
full-year FY19 forecasts again from the earlier 4.1% to 3.6% currently. With the
inflation reading expected to remain sub-4% by Mar’19 and real GDP growth at
~6.5% YoY in 2HFY19, we expect the RBI to deliver a rate cut next month assuming
there is no fiscal profligacy in the run-up to the 2019 general elections.
Foreign trade and exchange rate:
With crude oil prices swinging wildly from
USD85/bbl in Oct’18 to about USD60/bbl currently, fears of very high current
account deficit (CAD) have also receded. We have revised down our CAD forecasts
from earlier 2.9% to 2.4% of GDP for FY19. However, we expect the economy to post
a deficit on its balance of payments (BoP) in FY19. Accordingly, the INR forecasts
have not changed materially and are likely to average 70.4 against the USD. It is
expected to stay in a narrow range of 69.5-71.5 in 4QFY19.
Exhibit 1:
Forecasts of key macroeconomic variables for the Indian economy
Macro indicators
Nominal GDP
MP
Real GDP
MP
Real GVA
BP
Consumer price index (CPI)
Policy repo rate (year-end)
INRUSD (average)
Current account balance
Fiscal balance
Unit
% YoY
% YoY
% YoY
% YoY
% pa
unit
% of GDP
% of GDP
FY16
10.4
8.2
8.1
4.9
6.75
65.5
(1.1)
(3.9)
Actual data
FY17
10.8
7.1
7.1
4.5
6.25
67.1
(0.7)
(3.5)
FY18
10.0
6.7
6.5
3.6
6.00
64.4
(1.9)
(3.5)
Jan’19 forecasts
Oct’18 forecasts
FY19F
FY20F
FY19F
FY20F
12.2
12.6
12.0
12.8
7.0
7.0
7.0
7.2
6.8
6.8
6.7
6.9
3.6
3.8
4.1
4.8
6.25
6.00
6.50
6.50
70.4
73.1
70.7
73.3
(2.4)
(2.9)
(2.9)
(2.9)
(3.5)
(3.3)
(3.3)
(3.1)
Source: Various national sources, MOSL
Nikhil Gupta
– Research analyst
(Nikhil.Gupta@MotilalOswal.com); +91 22 6129 1555
Rahul Agrawal
– Research analyst
(Rahul.Agrawal@motilaloswal.com); +91 22 6129 1559
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

SWOT analysis
Nearly an optimal balanced economy
Democratic political system
Self-sufficiency in many food items
Strength
Highly sensitive to rising crude oil prices
Falling labor force participation ratio (LFPR) amid
growing working-age population base
Falling household savings
Weaknesses
Low households’ leverage
GST efficiency gains
One of the world’s youngest major nations
Low per capita income
Opportunities
Threats
Tendency to turn populist close to general elections
Higher crude oil prices increases external sector
vulnerability
Real estate/household investment recovery not yet
in sight
16 January 2019
2

Three key themes for 1Q2019
Apart from providing our updated macroeconomic forecasts for India, we also
discuss the three key themes likely to play out in 1Q2019/4QFY19 and also shaping
our forecasts.
1) According to our
expectations,
both headline inflation and real GDP growth has
been lower-than-expected in FY19. Since we don’t expect the government to
resort to any expensive populist scheme in the Union Budget 2019-20 (to be
presented on 1 Feb’19), a 25-50bp rate cut is likely this year.
2) Although general elections are just four months away, we don’t expect the
government to turn profligate as the capacity to spend more and keep fiscal
deficit unchanged at 3.5% of GDP in FY19 is very limited.
3) Although India’s investments have increased rapidly in the past four quarters,
we expect them to weaken in 2HFY19 and beyond. Further, the Indian economy,
we argue, is not ready for a strong investment revival.
I. Combination of weak growth and lower inflation to drive 25-50bp rate cut in
early 2019
After posting an 8-quarter high of 8.2% YoY growth in
1QFY19,
real GDP growth
decelerated sharply to 7.1% in
2QFY19,
which was a negative surprise to market
participants, but in line with our non-consensus expectation. The markets, we
believe, are set for another negative surprise. While the consensus growth estimate
for 2HFY19 is pegged at ~7%, we forecast it to be much weaker at ~6.5%, implying
full-year FY19 growth of ~7%, lower than the market consensus of ~7.3%.
Signs of a sharp deceleration in growth in 3QFY19 are already visible. According to
our in-house
economic activity index (EAI)
for India, real GDP growth dropped to a
13-month low of 3.5% YoY in Nov’18, implying an average growth of 5.1% in the first
two months of 3QFY19, much weaker than ~6.5% in 2QFY19
(Exhibit 2).
We believe
that real GDP growth would moderate towards 6.5% in 3QFY19 and further down to
~6.3% in 4QFY19, at least partly due to an unfavorable base. Consequently, we
expect real GDP to clock in ~6.5% YoY growth in 2HFY19 implying full-year FY19 real
GDP growth of ~7%
(Exhibit 3).
Exhibit 2:
Our in-house measure of economic activity (EAI)
indicates sharp deceleration in growth in 3QFY19
12
9
6
3
0
Q4 FY15
Q4 FY16
Q4 FY17
Q4 FY18
Q4 FY19F
7.1
% YoY
3-mma
EAI-GDP
While the consensus
growth estimate for 2HFY19
is pegged at ~7%, we
forecast it to be weaker at
~6.5%, implying full-year
FY19 growth of ~7%
Exhibit 3:
Real GDP growth expected to decelerate to ~6.5%
in 2HFY19 and ~7% in full-year FY19
(% YoY)
7.7
8.2
7.3
9.3
8.1
7.6
6.8
6.1
5.6
7.0
6.3
Real GDP
7.7
8.2
7.1
6.5 6.3
Shaded region implies forecast
Source: Central Statistics Office (CSO), CEIC, MOSL
16 January 2019
3

Further, inflation has also surprised on the lower side – as anticipated in our last
preview
– during the past 6-7 months. With inflation falling to 2.2% YoY in Dec’18
(the last reading before Feb’19 monetary policy), we
expect
the combination of
weaker growth and very low inflation to support a rate cut of 25bp next month
(Exhibit 4).
This is also based on our expectations that the Union Budget 2019-20,
likely to be presented on 1 Feb’19, will not include any major surprises of higher
fiscal deficit or populist schemes. Further, with headline inflation likely to remain
sub-4% by Mar’19 and real GDP growth also at sub-6.5%, there is a probability of
another rate cut in Apr’19 as well. However, a reversal in headline inflation i.e.
moving above 4% after Mar’19 and continued high core inflation (expected to
average 4.5% in FY20) should keep faster or further rate cuts at bay
(Exhibit 5).
Exhibit 4:
Headline inflation is expected to remain sub-4% by
March 2019…
8
6
4
2
0
Mar-15
Headline CPI
(% YoY)
Exhibit 5:
…but core inflation should remain above 4.5% in
4QFY19 and FY20 as well
8
6
4
2
0
Mar-15
Core CPI*
(% YoY)
Mar-16
Mar-17
Mar-18
Mar-19
Mar-16
Mar-17
Mar-18
Mar-19
Shaded region implies forecast
* Excluding ‘food & beverages’, and ‘fuel & light’
Source: CSO, CEIC, MOSL
The probability of a large
pro-rural scheme before
general elections in May’19
appears very low
II. Entering into general elections mode: Will the government turn profligate?
With Union Budget 2019-20 slated to be presented on 1 Feb’19, the monetary
policy action is heavily dependent on India’s fiscal policy. If the government
announces a populist scheme with significant amount of one-offs (like loan
waiver) or recurring expenditure (like universal basic income), rate cuts will be
difficult to come by as fiscal spending could fuel inflationary fears.
After the BJP’s loss last month in three major state assembly elections –
Rajasthan, Madhya Pradesh and Chhattisgarh – hopes of the central
government announcing a pro-rural scheme are running very high. To our mind,
however, such hopes may not yield desired results.
During the first eight months of FY19 (Apr-Nov’18), the fiscal deficit has already
touched 115% of the budget estimates (BEs), marking the highest level in the
past two decades, barring FY09
(Exhibit 6).
The GST collections have averaged INR968b in Apr-Dec’18, much lower than the
targeted monthly average of INR1.06t. In order to meet its target, the
government now needs INR1.35t per month in 4QFY19
(Exhibit 7).
Considering
very weak GST collections, it is highly possible that the government will have to
cut spending growth in the remaining months of FY19 if it wants to contain fiscal
deficit at 3.5% of GDP (higher then BE of 3.3%).
The probability of a large pro-rural scheme before general elections in May’19,
thus, appears very low. However, we would watch this space very closely, as it
would be a very important determinant for rural-oriented companies such as
Emami, Dabur, M&M etc. in the equity market.
16 January 2019
4

Exhibit 6:
Fiscal deficit up to Nov’18 was 115% of BEs…
(% of BE/RE)
85.6 80.4
48.9
94.0 98.9
87.0 85.9
112.0 114.8
Exhibit 7:
…amid weaker-than-expected GST collections
GST collection (INRb)
Required rate in FY19 = INR 1,063b
1,349
1,035
940
956
965
940
944 1,007 976
947
76.4
** Required in Jan-Mar’19
Source: Government of India, CAG, CEIC, MOSL
III. Will the investment revival continue in 2HFY19 and beyond?
India’s investments, measured by gross capital formation (GCF) grew at an average
of ~11% YoY during the past four quarters ending 2QFY19
(Exhibit 8).
Since FY13,
this was the first time India’s investment rate picked up from its multi-year low of
30.3% in FY17 to 30.7% of GDP in 1HFY19
(Exhibit 9).
The investments, however,
appear to have slowed in 3QFY19 and we believe that the revival seen during the
past four quarters is unlikely to sustain due to structural constraints.
Exhibit 8:
Real investments have picked up sharply during
the past four quarters…
20
15
10
5
0
(5)
(10)
Q2 FY13 Q2 FY14 Q2 FY15 Q2 FY16 Q2 FY17 Q2 FY18 Q2 FY19
(% YoY)
GCF
Exhibit 9:
…due to which the investment rate has increased
for the first time in six years
3
2
0
-2
-3
-5
-6
Q2 FY13 Q2 FY14 Q2 FY15 Q2 FY16 Q2 FY17 Q2 FY18 Q2 FY19
Source: CEIC, MOSL
(pp)
Change in investment rate
New project
announcements declined
sharply by 55% YoY to
INR1.0t in 3QFY19,
impacted by weakness
across segments barring
construction and real estate
According to the capex data
released
by the Centre for Monitoring Indian Economy
(CMIE), new project announcements declined sharply by 55% YoY to INR1.0t in
3QFY19, impacted by weakness across segments barring construction and real
estate (supported by the low base of 3QFY18). Rising policy uncertainties ahead of
the general elections and current liquidity tightness prevailing in the economy have
also added to the turmoil. While manufacturing declined 62% YoY (INR333b) and
services declined 72% YoY (INR243b), construction and real estate projects
increased 288% YoY (INR242b) supported by a weak base in 3QFY18
(Exhibit 10).
These trends have been captured by our in-house estimate of investment activity,
which posted double-digit growth for 12 successive months until Oct’18
(Exhibit 11).
Investments, however, have weakened sharply in Nov’18. Base effect, probably
played a large role in the revival, but we still need to wait and watch.
16 January 2019
5

Exhibit 10:
However, recent CMIE data suggests weaknesses
have not gone away…
200
150
100
50
0
(50)
(100)
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
New investment projects
(% YoY)
Exhibit 11:
…as investment activity has weakened sharply
in Nov’18 after double-digit growth for last 12 months
20
16
12
8
4
0
% YoY
3mma
MOLI: Investment
Source: CMIE, CEIC, MOSL
Finally, as explained in our recently released
note,
we firmly believe that the fall in
gross domestic savings (GDS) – from ~35% of GDP in FY12 to 29% of GDP in FY17 – is
the biggest structural constraint to push India's economy into the high-growth
phase. When there is a plan to push India's investments higher, the first obvious
question is
"Where will the financing come from?”.
At the best of time (in FY08),
foreign savings (called 'current account deficit') accounted for less than 5% of total
investments, and as much as 11-12% during the most fragile period (FY12-13).
Without a major pick-up in domestic savings, any strong revival in investments
would be highly unsustainable and the authorities would do well to avoid (or
encourage) any such recovery for short-term gains
(Exhibit 12-13).
Exhibit 12:
India’s investment rate is expected to increase
from ~29% to 36% of GDP by 2022…
40
36
32
28
24
20
FY99 FY02 FY05 FY08 FY11 FY14 FY17 FY20F FY23F
* Measured by gross fixed capital formation (GFCF)
FY01
FY05
FY09
FY13
FY17
* Center + state governments
Source: CMIE, CEIC, MOSL
(% of GDP)
Total investments (GFCF)
34.3
28.5
36.0
Exhibit 13:
…but financing of investments is the biggest
constraint
Government* savings
(% of GDP)
Non-government* savings
32.9
16 January 2019
6

Detailed economic projections
Exhibit 14:
Detailed projections for the economic growth
Macro indicators
Nominal variables
Gross domestic product at market prices (GDP
MP
)
GDP
MP
Private consumption expenditure (PCE)
Government consumption expenditure (GCE)
Gross capital formation (GCF)
GFCF + change in stocks
Exports of goods & services
Less:
Imports of goods & services
Gross Value Added at basic prices (GVA
BP
)
Agriculture & allied activities
Industry
1
Unit
USD b
% YoY
% of GDP
% of GDP
% of GDP
% of GDP
% of GDP
% of GDP
% YoY
% of GVA
% of GVA
% of GVA
% of GVA
% of GVA
% YoY
% YoY
% YoY
% YoY
% YoY
% YoY
% YoY
% YoY
% YoY
% YoY
% YoY
% YoY
% YoY
% YoY
% YoY
% YoY
% YoY
% YoY
% YoY
3
FY16
2,102
10.4
58.8
10.4
31.8
30.3
19.8
22.1
9.2
17.7
29.8
16.8
7.9
52.5
8.2
7.4
6.8
3.3
3.6
(5.6)
(5.9)
8.1
0.6
9.8
12.8
3.7
9.6
6.1
9.6
10.3
3.3
9.1
4.9
4.3
FY17
2,274
10.8
59.0
10.9
30.3
29.2
19.3
21.0
10.1
17.9
29.3
16.8
7.4
52.8
7.1
7.3
12.2
4.7
5.6
5.0
4.0
7.1
6.3
6.8
7.9
1.3
7.5
10.7
7.2
6.7
4.6
9.0
5.0
4.7
FY18 FY19YTD*
2,605
10.0
59.1
11.4
30.6
29.1
19.0
22.0
9.7
17.1
29.1
16.7
7.4
53.9
6.7
6.6
10.9
9.6
7.6
5.6
12.4
6.5
3.4
5.5
5.7
5.7
7.9
10.0
7.0
6.5
4.4
8.8
5.3
n/a
n/a
1,310
12.9
58.0
12.8
31.0
28.9
20.3
24.9
12.4
13.5
29.3
16.9
7.4
57.1
19.0
7.8
10.1
10.7
11.6
13.1
19.0
7.4
4.6
8.6
10.3
8.3
7.4
10.5
7.8
7.4
FY19F
2,674
12.2
58.7
11.3
30.7
29.5
20.2
23.8
11.8
16.0
29.5
16.8
7.3
54.5
7.0
7.2
7.5
9.4
8.9
13.7
16.3
6.8
4.0
6.9
7.9
5.7
7.4
8.8
7.2
7.0
4.9
10.4
6.1
FY20F
2,900
12.6
58.8
11.3
30.6
29.5
19.8
23.8
12.4
15.6
29.2
16.6
7.2
55.2
7.0
7.1
7.2
8.2
8.6
5.2
7.1
6.8
4.0
6.4
7.5
4.1
7.8
7.0
7.3
7.3
5.1
12.1
6.6
FY21F
3,225
12.9
58.3
11.2
30.4
29.4
19.0
23.1
12.8
14.9
29.2
16.5
7.1
55.9
7.2
7.0
6.9
8.0
8.4
3.5
4.4
7.0
4.0
6.5
7.3
5.6
8.0
6.9
7.5
7.6
5.6
11.9
7.0
Manufacturing
Construction
Services
Real variables
Real GDP
MP
PCE
GCE
GCF
Gross fixed capital formation (GFCF)
Exports of goods & services
Less:
Imports of goods & services
Real GVA
BP
Agriculture & allied activities
Industry
1
Manufacturing
Construction
Services
Community services, etc.
Non-agriculture GVA
BP
Non- agriculture non-community GVA
BP
Other real sector
Index of industrial production (IIP)
Nominal personal disposable income (PDI)
Real PDI
2
Incremental capital-output ratio (ICOR)
5.0
4.9
4.9
5.0
4.9
* Data available up to September 2018 (2QFY19)
# IIP data available up to November 2018
1
Industry includes mining & quarrying Manufacturing, electricity and construction;
2
Nominal PDI deflated by PCE deflator;
3
The ratio of last two years’ investments (as a percentage of GDP) and GDP growth - it is calculated using real-term data
Source: RBI, CSO, CEIC, MoSL
unit
16 January 2019
7

Exhibit 15:
Detailed projections of prices, rates and money & banking
Macro indicators
Price measures
GVA
BP
deflator
GDPMP deflator
PCE deflator
Consumer price index (CPI)
Food & beverages
Fuel & light
Core CPI
1
Unit
% YoY
% YoY
% YoY
% YoY
% YoY
% YoY
% YoY
% YoY
% YoY
% YoY
% YoY
% YoY
% YoY
% YoY
2
FY16
1.0
2.1
3.9
4.9
5.1
5.3
4.3
(3.7)
(0.4)
(19.7)
(1.8)
(1.9)
1.2
13.1
10.1
7.5
9.5
77.7
97.1
6.75
65.5
46.2
1,150
FY17
2.9
3.5
3.8
4.5
4.4
3.3
4.7
1.7
3.4
(0.3)
1.4
(0.1)
5.9
(12.9)
10.1
15.3
8.2
72.9
41.4
6.25
67.1
48.0
FY18 FY19YTD*
3.0
3.1
3.3
3.6
2.2
6.2
4.5
2.9
1.4
8.1
2.7
2.9
1.9
27.3
9.2
6.2
10.0
75.5
117.3
6.00
64.4
56.4
4.6
4.9
4.5
3.7
1.0
7.1
6.0
4.8
2.4
14.8
4.1
4.7
(0.2)
16.9
9.2
7.9
13.5
78.6
128.0
6.50
69.8
71.7
FY19F
4.7
4.8
4.0
3.6
0.9
6.7
5.9
4.5
2.5
12.8
3.9
4.5
0.2
6.6
8.7
10.0
13.6
78.0
102.7
6.25
70.4
68.7
FY20F
5.3
5.2
5.1
3.8
2.1
5.5
5.2
3.0
2.4
3.3
3.1
3.7
1.9
11.5
10.5
11.0
12.0
78.7
85.1
6.00
73.1
70.0
FY21F
5.4
5.3
4.6
3.9
1.7
6.1
5.6
4.0
2.9
8.2
3.7
4.3
1.3
12.0
10.9
11.5
12.6
79.4
85.7
6.00
74.2
70.0
Wholesale price index (WPI)
Primary articles
Fuel & power
Manufactured products
Non-food manufactured products
Food items (raw + processed)
Money & Banking (end-period)
Reserve money (M0)
Broad money supply (M3)
Bank deposit
Bank credit
Credit-deposit ratio
Incremental credit-deposit ratio
Key rates
Policy repo rate (end-period)
INRUSD (period-average)
Crude oil price (period-average)
Gold price (period-average)
% YoY
% YoY
% YoY
%
%
% pa
unit
USD/bbl
USD/ounce
1,259
1,270
1.249
1,250
1,300
1,300
* Data available up to December 2018, except for deflators (2QFY19)
1
CPI excluding ‘Food & beverages’, ‘pan, tobacco and intoxicants’ and ‘Fuel & light’
2
Broad money supply (M3) calculated using money multiplier
Source: RBI, CSO, CEIC, MoSL
16 January 2019
8

Exhibit 16:
Detailed projections for the external sector
Macro indicators
Current account balance
Merchandise
Invisibles
Total credit
Merchandise
Petroleum products
Valuables
Invisibles
Services
Total debit
Merchandise
Petroleum products
Valuables
Invisibles
Services
Capital and Financial account
Foreign direct investment (FDI)
Foreign portfolio investment (FPI)
Non-resident Indians (NRI) deposits
Errors & omissions
Change in forex reserves (+(withdrawal)/-(accretion))
Current account balance (CAB)
Non-oil
Non-oil non-valuables
Forex reserves (+(withdrawal)/-(accretion))
Savings-Investments
National savings
Households
Net financial savings
Physical savings
Corporate sector
Public sector
Domestic investments
Households
Corporate sector
Public sector
% of GDP
% of GDP
% of GDP
% of GDP
% of GDP
% of GDP
% of GDP
% of GDP
% of GDP
% of GDP
30.0
16.3
6.8
9.5
12.1
1.6
30.6
9.2
12.7
7.4
29.1
16.1
7.2
8.9
11.7
1.3
31.0
8.6
13.4
7.2
26.3#
n/a
n/a
n/a
n/a
n/a
31.0#
n/a
n/a
28.6
16.0
6.9
9.0
11.3
1.3
30.9
8.7
13.5
27.9
15.6
6.9
8.7
11.0
1.3
30.8
8.4
14.0
27.6
15.4
6.9
8.6
10.9
1.3
30.6
8.3
14.1
1
1
Unit
USD b
USD b
USD b
USD b
USD b
USD b
USD b
USD b
USD b
USD b
USD b
USD b
USD b
USD b
USD b
USD b
USD b
USD b
USD b
USD b
USD b
% of GDP
% of GDP
% of GDP
% of GDP
FY17
(14.4)
(112.4)
98.1
522.2
280.1
25.1
43.2
242.0
164.2
536.6
392.6
86.8
53.2
144.0
95.9
36.4
35.6
7.6
(12.4)
(0.5)
(21.6)
(0.6)
1.8
2.2
(0.9)
FY18 FY19YTD*
(48.7)
(160.0)
111.4
592.4
309.0
38.1
41.5
283.4
195.1
641.0
469.0
109.2
70.4
172.0
117.5
91.3
30.3
22.1
9.7
0.9
(43.6)
(1.9)
0.9
2.0
(1.7)
(35.0)
(95.8)
60.8
315.7
166.8
24.3
20.7
148.9
98.3
350.7
262.6
69.7
34.0
88.1
59.3
21.7
17.7
(9.8)
6.8
0
13.2
(2.7)
0.8
1.8
1.0
FY19F
(63.7)
(185.0)
121.3
642.3
338.8
47.8
43.0
303.5
203.8
705.9
523.7
140.8
54.3
182.2
123.1
46.7
30.2
(11.3)
10.8
0.0
17.0
(2.4)
1.1
1.5
0.7
FY20F
(83.8)
(207.9)
124.1
681.2
363.6
49.3
47.0
317.6
216.2
765.0
571.5
150.7
59.4
193.5
132.2
77.0
33.0
10.0
10.0
0.0
6.8
(2.9)
0.6
1.0
0.2
FY21F
(99.6)
(229.1)
129.5
725.9
391.8
52.0
48.9
334.1
228.7
825.5
620.9
160.0
61.7
204.6
140.1
89.0
36.0
15.0
10.0
0.0
10.6
(3.1)
0.3
0.7
0.3
n/a
7.2
7.1
7.0
* Data available up to 2QFY19 (September 2018)
# Implied from GDP data
1
Valuables include items related to gold, or any other precious metal
Source: RBI, CSO, CMIE, MoSL
16 January 2019
9

Exhibit 17:
Detailed projections for the central government finances
Macro indicators
Total receipts
Unit
INR b
% YoY
% of GDP
Revenue receipts
Gross taxes
Net tax collection
Direct tax receipts
Indirect tax receipts
Non-tax collection
Non-tax receipts
Non-debt capital receipts
Disinvestment
Total expenditure
INR b
% YoY
INR b
INR b
% YoY
INR b
% YoY
INR b
% YoY
INR b
INR b
INR b
INR b
INR b
% YoY
% of GDP
Revenue spending
Core revenue spending
Interest payments
Subsidies
Defence
Pensions
Capital spending
Fiscal balance
Revenue balance
Primary balance
INR b
% YoY
INR b
% YoY
INR b
INR b
INR b
INR b
INR b
% YoY
INR b
% of GDP
INR b
% of GDP
INR b
% of GDP
FY17
14,396
14.4
9.4
13,742
15.0
17,158
11,014
16.7
8,497
14.5
8,661
21.4
3,382
2,728
654
477
19,752
10.3
12.9
16,906
9.9
12,099
10.4
4,807
2,348
1,722
1,210
2,846
12.5
(5,356)
(3.5)
(3,164)
(2.1)
(549)
(0.4)
FY18RE
15,510
7.7
9.2
15,510
12.9
19,192
12,427
12.8
9,794
15.3
9,398
8.5
3,083
1,925
1,158
1,002
21,427
8.5
12.8
18,790
11.1
13,497
11.6
5,292
2,054
1,819
1,362
2,637
(7.3)
(5,917)
(3.5)
(4,438)
(2.6)
(624)
(0.4)
FY19BE
18,179
17.2
9.7
17,257
11.3
22,712
14,806
19.2
11,500
17.4
11,212
19.3
3,373
2,451
922
725
24,422
14.0
13.0
21,418
14.0
15,660
16.0
5,758
2,949
1,959
1,553
3,004
13.9
(6,243)
(3.3)
(4,160)
(2.2)
(485)
(0.3)
FY19YTD*
8,965
3.4
n/a
8,703
8.1
11,646
7,317
4.6
5,417
16.5
6,230
0.1
1,649
1,386
263
158
16,132
9.1
n/a
14,217
9.8
10,735
9.0
3,482
2,265
1,359
1,208
1,914
4.0
(7,166)
n/a
(5,515)
n/a
(3,684)
n/a
FY19F
17,247
11.2
9.2
16,247
4.7
21,013
13,697
10.2
11,167
14.0
9,846
4.8
3,550
2,550
1,000
650
23,888
11.5
12.7
21,418
14.0
15,660
16.0
5,758
2,949
1,959
1,553
2,470
(6.3)
(6,641)
(3.5)
(5,171)
(2.7)
(883)
FY20F
19,520
13.2
9.2
18,470
13.7
24,115
15,720
14.8
12,880
15.3
11,235
14.1
3,800
2,750
1,050
850
26,496
10.9
12.5
23,730
10.8
17,456
11.5
6,274
3,200
2,150
1,708
2,766
12.0
(6,977)
(3.3)
(5,260)
(2.5)
(703)
FY21F
22,544
15.5
9.4
21,394
15.8
28,138
18,344
16.7
14,400
11.8
13,738
22.3
4,200
3,050
1,150
1,000
30,241
14.1
12.6
27,060
14.0
20,216
15.8
6,844
3,400
2,350
1,884
3,181
15.0
(7,697)
(3.2)
(5,666)
(2.4)
(853)
(0.5)
(0.3)
(0.4)
* Data available up to November 2018
BE = Budget estimates, RE = Revised estimates and F= forecasts
Source: Union Budgets documents, CSO, MOSL
16 January 2019
10

NOTES
16 January 2019
11

Explanation of Investment Rating
Investment Rating
BUY
SELL
NEUTRAL
UNDER REVIEW
NOT RATED
Expected return (over 12-month)
>=15%
< - 10%
> - 10 % to 15%
Rating may undergo a change
We have forward looking estimates for the stock but we refrain from assigning recommendation
*In case the recommendation given by the Research Analyst becomes inconsistent with the investment rating legend, the Research Analyst shall within 28 days of the inconsistency, take appropriate measures to make the recommendation consistent with the investment rating legend.
Disclosures:
The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
Motilal Oswal Securities Ltd. (MOSL) is a SEBI Registered Research Analyst having registration no. INH000000412. MOSL, the Research Entity (RE) as defined in the Regulations, is engaged in the business of providing Stock broking services,
Investment Advisory Services, Depository participant services & distribution of various financial products. MOSL is a subsidiary company of Motilal Oswal Financial Service Ltd. (MOFSL). MOFSL is a listed public company, the details in respect of
which are available on
www.motilaloswal.com.
MOSL is registered with the Securities & Exchange Board of India (SEBI) and is a registered Trading Member with National Stock Exchange of India Ltd. (NSE) and Bombay Stock Exchange Limited
(BSE), Metropolitan Stock Exchange Of India Ltd. (MSE) for its stock broking activities & is Depository participant with Central Depository Services Limited (CDSL) & National Securities Depository Limited (NSDL) and is member of Association of
Mutual Funds of India (AMFI) for distribution of financial products. Details of associate entities of Motilal Oswal Securities Limited are available on the website at
http://onlinereports.motilaloswal.com/Dormant/documents/Associate%20Details.pdf
MOSL, it’s associates, Research Analyst or their relative may have any financial interest in the subject company. MOSL and/or its associates and/or Research Analyst may have actual/beneficial ownership of 1% or more securities in the subject
company at the end of the month immediately preceding the date of publication of the Research Report.
MOSL and its associate company(ies), their directors and Research Analyst and their relatives may; (a) from time to time, have a long or short
position in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in
the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and
opinions.; however the same shall have no bearing whatsoever on the specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOSL even though
there might exist an inherent conflict of interest in some of the stocks mentioned in the research report.
Research Analyst may have served as director/officer, etc. in the subject company in the last 12 month period. MOSL and/or its associates may
have received any compensation from the subject company in the past 12 months.
In the last 12 months period ending on the last day of the month immediately preceding the date of publication of this research report, MOSL or any of its associates may have:
a)
managed or co-managed public offering of securities from subject company of this research report,
b)
received compensation for investment banking or merchant banking or brokerage services from subject company of this research report,
c)
received compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company of this research report.
d)
Subject Company may have been a client of MOSL or its associates during twelve months preceding the date of distribution of the research report.
MOSL and it’s associates have not received any compensation or other benefits from the subject company or third party in connection with the research report. To enhance transparency, MOSL has incorporated a Disclosure of Interest Statement in
this document. This should, however, not be treated as endorsement of the views expressed in the report. MOSL and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result,
the recipients of this report should be aware that MOSL may have a potential conflict of interest that may affect the objectivity of this report. Compensation of Research Analysts is not based on any specific merchant banking, investment banking or
brokerage service transactions.
Terms & Conditions:
This report has been prepared by MOSL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and may not be altered in any way, transmitted to, copied or distributed, in part
or in whole, to any other person or to the media or reproduced in any form, without prior written consent of MOSL. The report is based on the facts, figures and information that are considered true, correct, reliable and accurate. The intent of this report
is not recommendatory in nature. The information is obtained from publicly available media or other sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied,
is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. The report is prepared solely for informational purpose and does not constitute an offer document or solicitation of offer to
buy or sell or subscribe for securities or other financial instruments for the clients. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. MOSL will not treat recipients as customers by
virtue of their receiving this report.
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the
specific recommendations and views expressed by research analyst(s) in this report.
Disclosure of Interest Statement
Analyst ownership of the stock
Companies where there is interest
No
A graph of daily closing prices of securities is available at
www.nseindia.com, www.bseindia.com.
Research Analyst views on Subject Company may vary based on Fundamental research and Technical Research. Proprietary trading desk of MOSL or
its associates maintains arm’s length distance with Research Team as all the activities are segregated from MOSL research activity and therefore it can have an independent view with regards to subject company for which Research Team have
expressed their views.
Regional Disclosures (outside India)
This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject
MOSL & its group companies to registration or licensing requirements within such jurisdictions.
For Hong Kong:
This report is distributed in Hong Kong by Motilal Oswal capital Markets (Hong Kong) Private Limited, a licensed corporation (CE AYY-301) licensed and regulated by the Hong Kong Securities and Futures Commission (SFC) pursuant to the Securities
and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “SFO”. As per SEBI (Research Analyst Regulations) 2014 Motilal Oswal Securities (SEBI Reg No. INH000000412) has an agreement with Motilal Oswal capital Markets (Hong Kong)
Private Limited for distribution of research report in Hong Kong. This report is intended for distribution only to “Professional Investors” as defined in Part I of Schedule 1 to SFO. Any investment or investment activity to which this document relates is only
available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of these securities, products and services in any jurisdiction where their offer or sale is not qualified or exempt from
registration. The Indian Analyst(s) who compile this report is/are not located in Hong Kong & are not conducting Research Analysis in Hong Kong.
For U.S.
Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In addition MOSL is not a registered
investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption
under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or intended for U.S. persons. This report is intended for distribution only to "Major Institutional
Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional investors"). This document must not be acted on or relied on by persons who are not major institutional
investors. Any investment or investment activity to which this document relates is only available to major institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule
15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S.,
MOSL has entered into a chaperoning agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of
this chaperoning agreement.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and therefore, may not be subject
to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.
For Singapore
In Singapore, this report is being distributed by Motilal Oswal Capital Markets Singapore Pte Ltd (“MOCMSPL”) (Co.Reg. NO. 201129401Z) which is a holder of a capital markets services license and an exempt financial adviser in Singapore,
as per the approved agreement under Paragraph 9 of Third Schedule of Securities and Futures Act (CAP 289) and Paragraph 11 of First Schedule of Financial Advisors Act (CAP 110) provided to MOCMSPL by Monetary Authority of Singapore.
Persons in Singapore should contact MOCMSPL in respect of any matter arising from, or in connection with this report/publication/communication. This report is distributed solely to persons who qualify as “Institutional Investors”, of which some of
whom may consist of "accredited" institutional investors as defined in section 4A(1) of the Securities and Futures Act, Chapter 289 of Singapore (“the SFA”). Accordingly, if a Singapore person is not or ceases to be such an institutional investor, such
Singapore Person must immediately discontinue any use of this Report and inform MOCMSPL.
Disclaimer:
The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced
in any form, without prior written consent. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial
instruments. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in
this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of
independent judgment by any recipient. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document
(including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. Certain transactions -including
those involving futures, options, another derivative products as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy,
completeness or fairness of the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the
views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval.
MOSL, its associates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform
investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a separate, distinct and independent of each other. The recipient should take this
into account before interpreting the document. This report has been prepared on the basis of information that is already available in publicly accessible media or developed through analysis of MOSL. The views expressed are those of the analyst, and
the Company may or may not subscribe to all the views expressed therein. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or
published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such
distribution, publication, availability or use would be contrary to law, regulation or which would subject MOSL to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all
jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Neither the Firm, not its directors, employees, agents or representatives shall
be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information.
The person accessing this information specifically agrees
to exempt MOSL or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSL or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSL
or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays.
Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022-3980 4263; www.motilaloswal.com. Correspondence Address: Palm Spring Centre, 2nd Floor, Palm
Court Complex, New Link Road, Malad (West), Mumbai- 400 064. Tel No: 022 3080 1000. Compliance Officer: Neeraj Agarwal, Email Id:
na@motilaloswal.com,
Contact No.:022-30801085.
Registration details of group entities.: MOSL: SEBI Registration: INZ000158836 (BSE/NSE/MSE); CDSL: IN-DP-16-2015; NSDL: IN-DP-NSDL-152-2000; Research Analyst: INH000000412. AMFI: ARN 17397. Investment Adviser: INA000007100.
Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers PMS and Mutual Funds products. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.: INP000004409) offers wealth
management solutions. *Motilal Oswal Securities Ltd. is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs, Insurance and IPO products. * Motilal Oswal Commodities Broker Pvt. Ltd. offers Commodities Products. * Motilal Oswal Real
Estate Investment Advisors II Pvt. Ltd. offers Real Estate products. * Motilal Oswal Private Equity Investment Advisors Pvt. Ltd. offers Private Equity products
16 January 2019
12