Axis Securities in its pre-Budget note highlighted that despite limited fiscal space, policy reforms are likely to continue.
History suggests that past Budgets have disappointed the equity markets more often, but this time the finance minister has promised a landmark Budget for FY22.
Whether landmark or not, the FY22 Budget will be historic in the face of an unprecedented pandemic that has caused great economic loss, said the note.
Axis Securities’ positive Budget bets include Hero MotoCorp, Escorts, Maruti Suzuki, Dabur India, Asian Paints, SBI, Star Cement, PI Industries, Dhanuka, Amber Enterprises and Dixon Technologies.
India has managed the pandemic much better than many developed economies and the cost borne by the government has been manageable. The finance minister has been unequivocal about spending on capital expenditure for reviving the economy and creating jobs.
At this juncture the budget appears to be quite constructive; however, the fiscal room afforded even after considering the improving economy and better-than-expected tax collections is not very significant.
Axis Securities highlights three broad contours for FY22 Union Budget:
Focus on Job creation:
The broad focus of the government will be job creation. This could mean more impetus on infrastructure and fiscal expansion using off-balance sheet structures.
While fiscal expansion appears to be challenging considering the fiscal deficit which will expand to ~7.5% in the current fiscal year, job creation through government activities is a necessity as private CAPEX continues to be sluggish.
MSME sector is likely to gain more benefits in the upcoming budget, relaxation in recognition of stress assets is expected to extend for MSME.
Public Health and Vaccination rollout will be key focus area:
Public health has become very critical and further investments in public health infrastructure seem very likely. Vaccination roll out will be a very large project involving significant government expenditure.
The outlay for this mega project and possible funding structure could become critical aspects of the budget.
Tax structures expected to be maintained:
Corporate taxes were reduced in 2019 and this structure is likely to be maintained in FY22 to encourage private investments. Personal income tax structures are also likely to be maintained as additional taxes will disrupt consumption.
The FY21 divestment targets were quite steep and are unlikely to be met which will be rolled over into FY22.
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