To say that economic growth has been a big worry in the last few quarters, will be an understatement. If at all, there is a time to act, and it is now. Desperate times call for desperate measures. The upcoming Budget will be a measure of government's intent to get the economic momentum back on track.
Equity market participants normally have a tendency to expect almost everything & anything from the budget, which rarely is the case. A number of reforms & even GST rationalization are normally off budget actionable, which does not require to necessarily feature in the Union Budget.
Some of the widely expected measures on the taxation side are lower personal income tax rates or raising exemption limits, removing or altering the definition/duration of long term capital gains tax, abolition of dividend distribution tax for companies but taxing the shareholders, sector specific import duty tweaks for supporting domestic manufacturing.
Any relevant relief on the personal taxation front will leave more disposable income in the hands of the people thereby leading to more demand for products and services & a significant increase in the economic activity. From a market standpoint, it revives consumption & is a huge positive not only for sentiment but also has a fundamental impact on companies. Also India is in requirement of more capital from both foreign & domestic investors. There is a dire need to improve investment climate & promote equity culture & encourage savings being channelized to financial investments. LTCG removal or changes in the definition/duration of LTCG will imbibe a lot of confidence & bring in cheer for equity investors.
An increase in FDI in insurance companies from 49 percent to 74 percent has often been debated, but has a good possibility to go through. Healthcare & sanitation can also be amongst the beneficiaries.
Any further feasible measures to improve liquidity for NBFCs since the Partial Credit Enhancement Scheme has not really worked well so far, would be welcomed with both hands by the industry & stock markets.
For autos, scrappage policy for old vehicles has been a long awaited measure, which ideally should see the light of the day. Apart from being a positive for environment, it will also boost the ailing auto industry. Government could increase the budgetary spends on rural side, which would be positive for Tractors, two wheelers & entry level four wheelers. The fertilizer ministry has recently told the press that the government is considering decontrolling urea by bringing it under the NBS regime, and that it is also considering transferring fertilizer subsidy directly to farmers (DBT), augurs as a positive for agri related businesses.
There is a decent possibility of an increase in budget allocation for infrastructure projects as well as PMAY. This can surely have a material impact on cement demand. Although the movement to asset monetization is noticeable, continual visibility on rational budgetary provision to infra will boost awards and execution. Working capital continues to be a pain point for contractors. Any strong step to improve the prevailing situation will be a big relief. A rethink or tweaking some parts of UDAY scheme, which supposedly has not delivered expected results could be on the anvil.
Last but not the least, the double whammy of lower tax collections (courtesy corporate tax cut & muted tax collections) & slower growth will take a toll on government finances. Also only 17 percent of divestment target has been achieved so far. In this context, it will be interesting to see the road map for next year with companies like BPCL, Air India, Concor on sale. Privatization has to be the way forward and government seems committed to tread this path. Markets have started to factor in a fiscal deficit number of around 3.7-3.8 percent. Rather than focusing only on the slippage number & going for expenditure cuts, expansion during an extended slower growth period can prove to be a smart prescription for bringing economy back on track & making capital markets vibrant.
Indian economy & markets have seen difficult periods time & again in the last three decades, but have come out with flying colors due to radical action at appropriate times by Government policy measures. These moments of adversity can either catapult us to new heights or beat us down continually, depending strictly on how we choose to interpret them and respond. With this backdrop, this time around, the Union Budget derives a lot of importance, as it will be seen as 'An opportunity in Adversity'.
(The author is Head – Equity Advisory at Centrum Wealth Management.)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.