Budget 2020: Financial Stocks’ Fears, Fiscal Stress Weighed On Markets, Says Envision Capital’s Nilesh Shah
The government’s actions related to the financial sector and investors pricing in the impact of the revised fiscal deficit for 2019-20 weighed on the stock markets, according to Nilesh Shah.
“Financials, which are a very large component of the Nifty Index, got immediately impacted,” the managing director and chief executive officer of Envision Capital told BloombergQuint in an interview. “This is because the cost of deposit insurance goes up (for banks) affecting their profitability and it appears state-owned banks may not be entitled to infusion of fresh capital from the government.” The financial sector has 41.5 percent weight on the benchmark.
That comes after Finance Minister Nirmala Sitharaman’s Union Budget for 2020-21, which didn’t have a proposal for injecting fresh capital into state-run lenders. Sitharaman, however, said the government will consider allocating funds for banking recapitalisation “as and when needed” in a post-Budget conference after markets had closed for the day.
Shah also mentioned the new personal tax regime that comes with a “no exemptions” rider could have a bearing on insurance and mutual fund industries. “There may not be a compulsion now for millions of middle-class families to buy insurance or invest in equity-linked savings scheme-based mutual funds.”
Fiscal Deficit Impact
Investors have also priced in the potential impact stemming from the revised fiscal deficit numbers on the rupee and interest rates, he said. The government India’s fiscal deficit settled at 3.8 percent in 2019-20 from an estimated 3.3 percent after invoking the “escape clause” under the Fiscal Responsibility and Budget Management Act.
It’s A Mixed Bag
- Dividend distribution tax, personal income tax expectations met; long-term capital gains and real estate woes not addressed.
How Will Money Markets React?
- Spike in bond yields expected on Monday; next year fiscal deficit target hinges on divestment target.
- The government will dilute its stake in LIC rather than opting for a fresh sale of shares.
On GDP Growth
- Short-term challenges to growth may persist.
- New personal income tax regime, rural growth recovery due to food price spikes will result in a “better” GDP growth story in the financial year 2020-21.
- Infrastructure push through sovereign funds will aid growth in the next 3-5 years.
Markets In 2020
- Companies with strong balance sheets, no governance issues will continue to dominate markets.
Watch| Envision Capital’s Nilesh Shah On Hits And Misses In Budget 2020