In our view, the present Budget will have to move towards balancing the high market expectations and fiscal consolidation amid a steady economic recovery, lower monsoons and external challenges such as the Iraq crisis keeping energy prices elevated.
Given this scenario, the Budget would be unlikely to unveil populist entitlement-focused schemes of the sort popularised by the previous UPA government. Rather, we expect a mix of 'bitter pills' and reform measures to manage the growth and fiscal discipline as witnessed in the recent bold moves by the government like the recent rail fare hike, higher import duty on sugar and continuance of diesel price hikes.
The previous two Budgets have seen sharp cuts in plan expenditure to fix the fiscal imbalances (FY12 fiscal deficit was 5.7%) amid higher allocation towards subsidies. Now, with a strong mandate to the new government to get the economy back on track, it is time to witness a trend reversal in the budgetary allocation towards growth.
Further, the government's initiatives such as removing bottlenecks, streamlining regulatory bodies, implementation of GST, DTC to boost the investment cycle and expanding the scope of various saving schemes to revive savings rate to bridge saving investments imbalances, in the backdrop of the economic slowdown would be keenly watched.
To sum up, the market would be keeping watch on the steps towards growth measures (like higher allocation towards infrastructure development, consolidation of social schemes and lowering subsidy burden) and step towards good governance rather than just the fiscal numbers, given the paucity of time. This would set the tone for long term economic growth and fiscal consolidation.
On the tax receipts front, we expect the new government to be more realistic in its tax estimates unlike the interim Budget estimates. Given the steady economic recovery, we expect the gross tax collection target to be revised downwards at 15.3% vs. 21% budgeted by the previous government.
On the positive side, we expect the disinvestment target to get revised upwards given the buoyancy in the capital market. Stake sales in various PSUs to comply with Sebi guidelines of 75% promoter holding would alone fetch a whopping Rs 80,000 crore to the government, which could be a major kicker in revenue growth.
We expect non-plan expenditure to grow a tad higher than interim Budget estimates mainly on account of higher oil subsidy burden led by high rollover burden of the previous year. Nonetheless, it should lead to an improvement in the quality of fiscal performance.
Other key measures to look for:
• Steps towards encouraging private investments to revive the investment
cycle, given the limited fiscal stimulus
• Steps towards containing food inflation through unbundling of FCI
• Focus on creation of more financial savings vis-à-vis physical savings
We remain positive on capital goods, power, infrastructure, metals, oil & gas and quasi defensive sectors such as automobiles cement and banks. We remain underweight on defensive sectors like FMCG, pharma & IT.
Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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