The main focus of the Budget this time will be on boosting economic growth, which slowed to an over six-year low of 4.5 percent in the second quarter of 2019-20 and the market is heading this Budget with high expectations from the government to boost economic growth as the government is on the path of economic reforms.
There is need for a demand push for any meaningful recovery in the economic growth where after a big announcement of corporate tax cut, there is an expectation of cut in personal income tax which will help to fuel some demand in the economy but it alone can't help for economy to revive because the real pain point is rural distress.
We think this Budget is going to be more focused on the rural economy because the government knows well that the rural economy is the most important wheel which needs to be turned first for a better pace of the overall economy.
The market is expecting steps from the government to fuel consumption demand in the economy where a reduction in income tax is one of them while increasing farm income is another important point. As the government has already done significant cut in corporate taxes, expectations are high that it would announce some relief for the salaried class by making changes in the personal income tax structure. The abolishment of LTCG is the biggest demand from investors to improve market sentiments in the market.
It will be important to see that how the government will do math of fiscal deficit when there is need of high government spending on infrastructure and agriculture where the government is already under pressure of revenue shortfall, but the government needs to focus on expenditure to boost economic growth instead of worrying about fiscal deficit target. There is a need for private Capex to jump up for faster growth of the economy and first the government has to show confidence in terms of spending.
There is a need for rationalization of GST rates, labour reform and more ease of doing business to improve business sentiment in the economy.
The housing sector may see major announcements in this Budget in line with the government's aim of housing for all by 2022. The definition of affordable housing can be widened whereas allocation to PM Awas yojna can be raised.
Improvement in credit flow in the economy is need of the hour where further capital infusion can be done in PSU banks and measures can be taken for easy access of money to NBFCs.
If we talk about the market then there is a need for abolishment or rationalization of LTCG which will improve the sentiment in the market. It will also help the government to get buyers for its strategic divestment in PSEs. The abolishment of STT and rationalization of the dividend distribution tax is another demand of the market from the Budget.
It would be a tough job for the government to take measures for economic growth amid worries of the fiscal deficit but market won't worry if government tweaks the target of fiscal deficit to revive the economy because if the economy will do well then the government will manage to achieve its fiscal deficit target in long run.
Other than the infra sector, the housing sector will be in focus in this Budget where the central government is mulling to provide income tax incentives to taxpayers who want to purchase a home. The government may also take steps to make Indian export competitive.
In terms of technical levels, 11,900-11,700 area is very strong support zone for the Nifty and market will remain in bullish trend till Nifty trades above this zone while if Nifty surrenders this level due to geopolitical tension then market will become weak while in the upside 12,150-12,200 is an immediate supply zone; above this market may head towards 12,500 levels.
We can expect a pre-Budget move in many midcap and small cap counters while the market will get more clarity after the Budget to get further direction.
(The author is Co-Founder and CEO at TradingBells.)Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.