By Rajiv Singh
Union Budget 2018-19: Finance Minister Nirmala Sitharaman has presented her maiden Budget and has shown striking balance between steps for economic recovery and fiscal discipline. She started her speech by saying that we will become 3 trillion dollar economy in the current financial year and shall move to 5 trillion dollar economy in the coming few years. She laid growth path and reiterated that gone are the days of policy paralysis. A major push is given for infrastructure projects and the creation of a blueprint for the same shall boost the economy.The finance Minister assumes India to become a 3 trillion USD economy in the current year and target 5 trillion USD in the coming years.
With the steps and measures announced taken today, it’s a budget which is presented with a vision of next 10 years in mind. Budget has addressed both short term and long-term framework for getting the economy back on track and focus of long term economic growth. Measures like providing liquidity to NBFC, PSU Banks recap may be assumed as short to medium term measures which can dress immediate concerns while giving importance for infra push, housing for all, doubling of farm income and others shall drive the long run economy.
By enhancing disinvestment target to Rs 1,05,000 crore in FY20 as against Rs 90,000 crore set in the Interim Budget and stating that the government will start raising part of its gross borrowing program in external markets in external currencies shall reduce pressure on the fiscal deficit. The government has announced a divestment target of Rs 1.05 lakh crore for FY20. This is one of the ambitious targets set by the government after they successfully achieved the Rs 90,000 crore target in the last financial year. The government needs buoyant market conditions to meet this target. The government has stated they are looking at a strategic sale (or privatization) and this target may include the strategic sale of Air India, probably the first one which may be divested. However, most of these divestment targets will most probably be met by transferring state to CPSE ETFs, Offer For Sale or by selling stake to institutions like LIC.
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Asking SEBI to evaluate on minimum public shareholding norms and at the same time government trying to reduce its stake in most of the CPSEs to below 51% can be assumed as the major capital market reforms which can improve transparency in those companies. Liberalization for FDI into aviation, media and insurance intermediaries shall pull capital into India. Announcement of streamlining of labour laws into simple codes also suggests the government is focusing on becoming more capitalist side of the economy. Measures like one time six month partial credit guarantee to PSU Banks for purchase of high rated pool assets from NBFCs, allowing FII’s and FPIs to invest in NBFCs debt securities shall relieve the liquidity-starved NBFCs. The government will infuse Rs 70000 capital infusion into PSU Banks is likely to help them meet minimum their capital requirements and boost credit growth in the economy.
With 25% corporate tax rate applicable to companies with an annual turnover of up to Rs. 400 crore. Only 0.7% companies will remain outside of this rate and will act as the major fiscal boost for the MSME sector. Finally by targeting to keep fiscal deficit at 3.3% versus 3.4% and retaining fiscal discipline targets for FY 21 and FY 22 at 3% are welcome moves. The government seems to be now moving towards fiscal tightening as they reduced the fiscal deficit target to 3.3% from the previous 3.4% of GDP. This could be one of the negatives from the growth point of view as aggressive steps towards capital formation, expansion of infrastructure and boosting rural growth will be constrained. Though the government plans to go for offshore borrowing to fund the capital expenditure we expect the government to miss the given targets by around 0.2% to 0.3%.
Markets will here on focus on the implementation of the announcements, while global market cues and corporate earning shall play crucial role to decide the trend. From portfolio point of view, with the announcement of recap, FDI norms relaxation, ease of liquidity measures shall relieve the stress and hence one may have bullish bets on BFSI, Realty, Infra, and Auto stocks. Companies like Oberoi Realty, Godrej Properties. SBI, HDFC, HDFC Bank, ICICI BANK, Adani Ports, Larsen and Toubro, KNR Constructions could be major beneficiaries, while with the implementation of additional customs duty on gold, jewellery and levy of excise duty shall make oil and gas stocks sentimentally negative. Stocks like ONGC, GAIL, Hindpetro, BPCL from energy pack, and Titan from jewelry segment shall be under pressure.
With Finance Ministry requesting SEBI to review minimum public shareholding to 35%, major PSUs, MNCs and select IT Companies may have upside capped at these companies prices. Stocks like TCS, WIPRO, SIEMENS, HDFC AMC, DMART, HDFC Life, Bandhan Bank have promoters' holding more than 65%.
The author is CEO - Stock Broking, Karvy. The views expressed are the author’s own.