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Budget 2020: #39;Growth to be key agenda, supportive measures for industries expected#39;

January 28
13:02 2020

Revenue from GST is much low while additional fiscal incentives were provided to exports, sectors and A huge cut in corporate tax. Much is factored in and the market may not be impacted even if the fiscal number comes as high as 3.6 percent to 3.8 percent.

For the final number, a lot will depend on the government’s control on expenditure and relay in payment in Q4FY20, SAID Vinod Nair, Head of Research at Geojit Financial Services in an interview to Moneycontrol’s Sunil Shankar Matkar.

Edited excerpt:

What are your expectations from the Budget? Do you think it will turn out to be big, considering the economic slowdown?

Growth will be the key agenda of the Budget, and the intention will be to clutch out India from the slowdown and place it on a strong footing. We expect tax incentives for salary class while uplifting of agriculture & rural economy to be maintained. Supportive measures will be provided for industries too.

Do you think the government will be able to meet this fiscal deficit target?

The fiscal target for FY20 was forecasted at 3.3 percent, but the actual will be different given considerable fall in economic growth to sub-5 percent from more than 7 percent expected. Revenue from GST is much lower, while additional fiscal incentives were provided to exports, sectors and huge cut in corporate tax.

Much is factored in and the market may not be impacted even if the fiscal number comes as high as 3.6 percent to 3.8 percent. For the final number a lot will depend on the government’s control on expenditure and relay in payment in Q4FY20.

The government is likely to use the escape clause of Fiscal Responsibility and Budget Management (FRBM) but stay within the 0.5 percent limit allowed in extraordinary years.

Which sectors are likely to hog the limelight in this Budget 2020 and why?

Sector-specific goodies are expected for segments like auto, infra, realty, aquaculture and housing. For auto, scrappage policy maybe outside the Budget while focus will be Electric Vehicles in the Budget.

Do you think infrastructure could turn out to be a strong beneficiary in the upcoming Budget?

The plan for infra is already announced with Rs 105 lakh crore spending in the next 5 years, double than achieved in the last 6 years of Rs 52 lakh crore. The confidence of the market to achieve this plan is fragile today due to weak fiscal and given the fudging of budgeting and reality of the economy in the last two years. The market will access the current position, practicality of the budget forecast and possibility of its implementation.

At the same time, it is commendable that the government understood the gaps and announced corrective & supportive measures to improve the situation. As a result, market may not get very undefined, given a good set of pre-budget discussions undertaken this time. The government is likely to use the escape clause of Fiscal Responsibility and Budget Management (FRBM) and stay within the 0.5 percent limit allowed in extraordinary years. Fiscal target for FY21 will be prepared with more flexibility with growth as the main theme of the Budget.

What are the expectations from Budget 2020 from investors or market perspective?

The market is very hopeful that union budget will offer incentives to the equity market & investors in terms of restructuring STT by providing tax rebate, changes in long-term capital gain tax and a drop-in dividend distribution tax.

Do you expect sharp correction in the market after the Budget 2020 and can the Nifty test 11,000 before moving towards 13,000 mark?

The overall Budget expectation is very high increasing the event outcome risk. But we do not expect such a washout effect on the market rather some short-term reaction since many of the expectations are factored in the market. We don’t expect this budget to be negative for the market. In the long-term we have a positive view on the market, for Nifty50 with a target of 12,700 on a one year forward basis with earnings growth forecast of 15 percent CAGR in the next two years.

Will it be a bumper year for mid, small caps?

Yes, today the broader market is cheaper than the main indices. We feel that room for the main indices to provide decent return is limited since valuation for super large stocks is very high. Tailwinds will be more to value stocks and upcoming sectors. We also expect more actions in mid & small caps due to likely uptick in economy, rational valuation and increase in the appetite of corporates & investors.

Will a major tweak in personal income tax, if happens, be a game changer?

Yes, it will be positive for the market and especially for consumption stocks like Staples, Discretionary and Durables like Electronics, Auto & Gold. It will be also positive for banking sector.

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