Budget 2020: Here’s What Brokerages Made Of Nirmala Sitharaman’s Proposals  

Most brokerages said no decision to lower or scrap the long-term capital gains tax and lack of measures to revive the non-bank lending and real estate sectors will disappoint markets.

They also see growth recovery taking longer than expected as Finance Minister Nirmala Sitharaman announced no stimulus or spending boost to bolster sentiment. The Budget was expected to offer some steps to stimulate demand, to revive the economy from the worst slowdown in six years.

Sitharaman in her Budget 2020 cut personal tax rates but only for those willing to give up exemptions. Allocations to various government schemes either remained unchanged or rose marginally. The government invoked the ‘escape clause’ by letting the fiscal deficit go up to 3.8 percent of the GDP in FY20, while targeting 3.5 percent in FY21.

That’s predicated on record divestment target of Rs 2.1 lakh crore and tax growth. To be sure, the government is estimated to miss its FY20 divestment and tax revenue targets.

Here’s what brokerages had to say about Budget 2020:

Credit Suisse

• Lack of policies to target stress in real estate and financial services may disappoint market.
• Growth may remain subdued for longer than expected, and lower interest rates remain necessary for the growth to recover.
• Limited cuts in central government spending moderates a headwind against growth; focus on fiscal consolidation encouraging.

Goldman Sachs

• Fiscal deficit slippage to 3.8 percent from the udgeted target of 3.3 percent was expected.
• While equities fell after the Budget, bond markets are likely to remain roughly flat on Monday as they had factored in a deviation of 0.5 percentage points.
• Maintain the view of RBI keeping policy rates on hold on Feb. 6 as inflation inches up and some of the budget measures provide comfort.

Axis Capital

• The outcome of the Budget has been short of market expectations on two counts of long-term capital gains tax and dividend distribution tax.
• The decision to continue with LTCG is a big disappointment. While DDT was abolished for companies, dividends would be taxed at the hands of the investors at applicable income tax rates.
• The Budget lacked immediate measures to revive the economy. Need to watch consumption post the Rabi harvest, marriage season and the arrival of monsoon.
• New taxpayer charter to end tax harassment, amending Companies Act to decriminalise civil offences, adopting faceless appeals along with the new direct tax dispute settlement scheme are positive steps.
• Eyes now on sector-specific measures the government or the GST Council could take to revive the economy.

HDFC Securities

• The Budget tilted more towards fiscal conservatism, failing to meet expectations against the backdrop of weak macros.
• FY21 fiscal deficit has been pegged lower at 3.5 percent based on somewhat aggressive assumptions.
• While the government followed on its stated path of simplifying tax regime and lowering rates, its approach seems gradual.
• A 13 percent rise in allocation for agricultural and rural development should be consumption positive.
• A key disappointment was lack of measures to heal the strained NBFC and real estate sectors.

Nomura

• The Budget is largely neutral for growth and inflation.
• Refrains from fiscal activism and appears to avoid growth short-cuts in favour of more durable drivers. Execution of this intent remains the key risk.
• A prolonged deleveraging cycle and a clogged financial sector mean that any growth recovery from the current downturn will take much longer.
• Expect GDP growth to remain at 4.5 percent in the quarter ended December and slow to 4.3 percent in Q4.
• See a below-trend growth of 5.7 percent in FY21 compared with 4.7 percent in FY20.
• The current inflation spike is transitory, and lack of fiscal activism will open up monetary policy space.
• Expect the RBI to leave policy rates unchanged and retain its accommodative stance next week, but signal future easing.
• Expect a 25 basis-point cut in second quarter of 2020.

UBS

• The Budget lacked the growth boosting measures that the markets were looking for but rather focused on ensuring macro stability.
• Maintain base case expectation of a gradual and sub-par growth recovery in FY21.
• Lack of major fiscal impulse means the growth recovery could remain elusive - especially amid a very weak credit impulse.
• No dilution in long-term capital gains tax against market’s expectations.
• A 3 percent fall in Nifty from pre-Budget high reflects the disappointment.
• Cautious on the Rupee in the near term; expect local currency to hit Rs 72/$ by March.
• $9.20 billion of growth-seeking portfolio inflows since September 2019 at a risk of reversal.

BofA Securities

• Markets’ disappointment with the Budget will be short-lived, after which MSCI India should continue to move with the emerging market index.
• Investors need to focus on Fed-driven global liquidity, risk appetite trends and profit numbers.
• Details awaited about the proposals on credit support to NBFCs, while a higher deposit insurance will improve confidence in small banks.
• Removal of investment exemptions could hurt insurance companies.
• Higher cigarette taxes could dampen volume growth for the sector.
• A large divestment target could keep pressure on PSU stocks.

Prabhudas Lilladhar

• The Budget is a lost opportunity to revive growth.
• The brokerage changed its stance on last year’s corporate tax rate from “positive” to a costly mistake in the absence of a relief in personal income tax rates.
• A similar reduction in personal tax would have gone a long way in demand revival in the economy.
• The finance minister had the leeway to go for higher fiscal deficit and create space for more capex and a major push for reforms and consumption, but the intent seems to be missing.

Kotak Securities

• The fiscal deficit target of 3.5 percent for FY21 may not alarm the bond or equity markets much, but the brokerage sees upside risks.
• The market may be disappointed by lack of meaningful overall or sector-specific stimulus for housing and infrastructure and no changes to capital gains tax.
• Proposed taxation changes are negative for tobacco companies.
• Insurance companies may not be affected as much as the market feared initially on Budget day.
• Low visibility on the government’s medium-term plans for PSUs.

Philip Capital

• Lack of fiscal stimulus, relatively higher focus on infrastructure, nothing for real estate, no incremental gains for rural, reliance on strategic sales, inclusion of G-Secs in the CPSE ETF and nominal income tax sops were expected.
• Continuity seen in attracting foreign capital, deepening of bond markets, and raising tax compliance.
• Fiscal deficit slippage to 3.8 percent for FY20 was above the brokerage’s expectation of 3.5 percent, while 3.5 percent of FY21 was in line.
• A respectable rise in capital expenditure, even above the higher spending in FY20, is encouraging.
• Dependence on external budgetary resources stood at Rs 6.7 lakh crore against Rs 7.1 lakh crore in FY20.
• Abolition of DDT and removal of some income tax exemptions is indicative of a simplified tax regime.

Antique Stock Broking

• The first full-year Budget of Modi 2.0 is practical and focuses on growth and macroeconomic stability. It tries to revive consumption by providing a simplified personal income tax structure of lower tax rates without exemptions.
• Capital expenditure spend muted for FY21 which may create pressure in short term.
• 100 percent tax exemption for investment made by sovereign wealth funds, along with lower corporate tax rates, may help revive private capex cycle over the medium term.
• FY21 growth assumptions for gross tax revenue (11.9 percent), expenditure (12.7 percent) and nominal GDP growth (10 percent) appear achievable.
• A road map of reduction in both fiscal deficit and central government debt is comforting.

Antique’s Top Picks

Large cap: HDFC Bank Ltd., Hindustan Unilever Ltd., Infosys Ltd., ICICI Bank Ltd., Larsen & Toubro Ltd., Asian Paints Ltd., Ultratech Cement Ltd., Adani Ports & Special Economic Zone Ltd., Siemens Ltd., UPL Ltd. and Muthoot Finance Ltd.

Mid cap: Cholamandalam Investment and Finance Company Ltd. Honeywell Automation India Ltd., Bayer Cropscience Ltd., Phoenix Mills Ltd., Solar Industries Ltd., Kajaria Ceramics Ltd., Timken India Ltd. and Brigade Enterprise Ltd.