Markets weekahead - Stakes high as India gears up for budget

An investor scratches his head as he looks at a display of stock prices outside the Bombay Stock Exchange (BSE) building in Mumbai June 18, 2012.

Market Eye Weekahead - India's bond and forex markets are gearing up for one of the key annual domestic events: the budget for the next fiscal year starting in April, to be announced on February 28.

Investors will closely scrutinise the budget to see whether India delivers a credible plan that can contain the fiscal deficit at a targeted 4.8 percent of GDP for 2013/14.

Much is at stake in the budget, given the threat of India losing its investment-grade rating from Fitch and Standard & Poor's.

Whether the government can avoid its usual habit of ramping up spending ahead of general elections, due by 2014, will be particularly key.

Bond investors will check whether India can hold gross market borrowing at 5.7 trillion to 6 trillion rupees, which will be a key indication of the government's fiscal discipline.

The 10-year benchmark bond yield is expected to hold in a 7.75 to 7.83 percent range until the budget, with the yield likely to drop below 7.75 percent if the gross borrowing number is lower than 5.7 trillion rupees.

Forex traders would look for cues on how the government plans to revive investment in key sectors which will be crucial in bringing in dollar inflows and boosting the rupee.

The rupee is seen holding in a 54.10 to 54.80 per dollar range until the budget.

(swati.bhat@thomsonreuters.com/; swati.bhat.thomsonreuters.com@reuters.net)