What Top Brokerages Expect From Budget 2020

Most analysts expect the government to spend more on infrastructure even as they cautioned that the task of reviving the sluggish economy, while maintaining fiscal discipline, is going to be difficult.

Several brokerages said they expect some relief on the personal income tax front to boost consumption.

Finance Minister Nirmala Sitharaman will present the second budget of the second term of Narendra Modi government on Feb. 1.

Here’s a look at what brokerages expect from Budget 2020:

Ambit

• FY21 is set to be characterised by increase in expenditure growth alongside fiscal expansion.
• Increase in exemption limit should be expected on the personal income tax front.
• Expect a hike in Goods and Services Tax, increase in income tax exemption and focus on rural spends.

Antique

• Budget may be tilted towards stimulating growth by extending existing tax rebates.
• The government may also reduce or abolish long-term capital gains tax which may significantly improve investor sentiment.
• Expectation is running high from the upcoming Union Budget to provide stimulus to revive the economy.
• Any disappointment could lead to a 5-10 percent correction in the overall market.
• Project a 3.5 percent FY21 fiscal deficit to GDP versus 3.0 percent as guided earlier.

Axis Capital

• Given budget constraints, the government needs to maximise spending efficiency in FY21.
• Budget will be a test for fiscal management since growth needs support but finances can’t be ignored.
• The government will aim for an optimistic target for next financial year on divestment as it’s an underachievement this fiscal.
• Dividends will be better than expected due to the Reserve Bank of India’s one-off dividend.
• Expect a careful mix of higher rural and infrastructure spending plus tax breaks aimed at stimulating auto and housing demand.

Barclays

• Difficult task of delivering a fiscal boost to the sluggish economy while maintaining long-term fiscal discipline.
• Think the government will present a credible budget and lay out a roadmap that returns the deficit to 3 percent of GDP by FY22-23.
• The government doesn’t have headroom for any large personal income tax cuts.
• Expect the government to set an even larger target of Rs 1.25 lakh crore for divestment of assets in FY20-21.
• In lieu of cutting personal income taxes, the government is likely to give precedence to direct spending.

BofA Securities

• A middle path is possible in managing deficit and capex.
• Expect the finance minister to run higher fiscal deficits—3.8 percent of GDP versus 3.3 percent budgeted in FY20 and 3.5 percent in FY21.
• Expect a boost in demand by a mix of tax rate cuts, housing, MSMEs and direct support schemes for consumption.
• Supply-side measures, like the September corporate tax cut, won’t show up in growth for another two-three years.
• Temporary deficit financing to fund corporate tax rate cut.

Care Rating

• Budget would primarily be directed towards raising investment and consumption levels.
• Budget should look at substantial employment generation from infrastructure development route entailing higher capex.
• There could be some limited measures announced on the personal tax front to provide some support for consumption.
• See increase in deductions of income tax with no change in slab rates.

Centrum

• Expect the deficit for FY20 to witness a 30-40-basis point slippage from the budgeted target of 3.3 percent.
• Divestment target unlikely to be met this year as only about 17 percent of the disinvestment target has been achieved.
• Improving sentiment rather than increasing fiscal deficit may do the trick.
• Reintroduction of LTCG maybe with two-year period is most likely to uplift sentiments.
• Allowing tax breaks for buying property is likely to sort the real estate sector.
• Another step which can help without the much impact on fiscal is abolishment of the dividend distribution tax.

Citi

• The government would have to make a critical choice between fiscal stimulus and fiscal restraint.
• The government would likely opt for restraint in FY21 over fiscal stimulus.
• Would try to project a fiscally prudent stance rather than using entire flexibility provided by the Fiscal Responsibility and Budget Management Act.
• For FY21, we expect fiscal deficit to be pegged at 3.5 percent of GDP.
• Any windfall gains from the telecom sector could be a positive surprise.

CLSA

• Miss in tax and disinvestment receipts may be partly offset by the government curbing expenditures.
• To revive growth, the government could cut the personal income tax rate.
• Any income tax cut would be a boost for discretionary plays.
• A higher exemption for housing and the rollback of the long-term capital gains tax are other possible positives.
• Maruti Suzuki India Ltd., Titan Company Ltd., Asian Paints Ltd., United Spirits Ltd., Jubilant FoodWorks Ltd. and Havells India Ltd. could be gainers if personal income tax is cut.
• Hindustan Unilever Ltd., Colgate-Palmolive Company and Dabur India Ltd. may gain if the government chooses higher rural spending over a tax cut.

Edelweiss

• FY20 to see a slippage of 50 basis points, FY21 should aim at fiscal expansion.
• Expect net revenue shortfall of Rs 2 lakh crore and expenditure cut of Rs 1.25 lakh crore.
• Believe slipping on fiscal deficit owing to revenue shortfall is not expansionary.

Emkay

• Given the tight fiscal space, we doubt many big bang announcements could be made.
• FY21 budget will probably look relatively slimmer with a deficit of 3.5 percent of GDP.
• Concentration on spending would again steer towards railways and defence.
• Focus toward reviving sentiment in the real estate sector.

IIFL

• Budget will be a measure of the government’s intent to get the economic momentum back on track.
• Lower personal income tax rates, removing LTCG, plan for overseas issuance of sovereign bonds are key steps.
• Sector-specific import duty tweaks for promoting domestic manufacturing.

Jefferies

• Personal tax cuts may achieve little, though, and GST cuts look unlikely.
• The plan still paints a hopeful picture of a turnaround in infrastructure spending.

Morgan Stanley

• Estimate central government’s fiscal deficit to gradually narrow to 3.5 percent of GDP in F2021.
• The focus should be on raising revenues at a fast pace through strategic divestment.
• Continue to favour investment-driven growth with redistributive spending likely to remain in line with nominal GDP growth.
• Provide strong intent to raise additional resources through strategic divestment and asset monetisation.
• Provide a credible medium-term fiscal consolidation plan and improve the balance sheets of public sector enterprises.

Nirmal Bang

• Reflationary budget required for broader market revival and sustenance.
• Budget 2020 likely to be more pragmatic than populist.
• Peg the fiscal deficit for FY20 at 3.8 percent of GDP and for FY21 at 3.6 percent of GDP
• Time is now ripe for a cut in personal income taxes to boost consumption.
• Credit flow to MSMEs, NBFCs and real estate sectors may get a boost.
• Rural spending to get marginal boost and infra spending to remain in focus.

UBS

• Growth in revenue collection is likely to be rather modest.
• Balancing act between fiscal consolidation and increasing rural, infrastructure and social sector spending.
• Expect the government to target a fiscal deficit of 3.4 percent of GDP in FY21.