The government may try to showcase its next five years' plan in the Budget 2019 to boost the slowing economic growth with fiscal discipline
While the expectations are running high from the Union Budget 2019-20, it is unlikely to surprise the Street given the limited resources with the government.
We believe the government may try to showcase its next five years' plan in the Budget 2019 to boost the slowing economic growth with fiscal discipline.
The need of the hour is to arrest falling GDP growth and the government may try to target several segments with various sops to boost the ailing economy and job creation.
In addition to a strong focus on the infrastructure development and higher income for the rural population, we believe reviving real estate can have a cascading impact on several sectors including cement, metals, building materials, paints, etc.
By providing various sops to the housing sector, the government can essentially target to boost many sectors along with job creations and thus supporting economic growth.
Higher deduction for interest on housing loans, restoring benefits for the second house purchases, etc. could be the kind of measures one can look forward from the budget.
Meanwhile, given the private capex revival will take some more time, the government may increase its capital expenditure by more than 6 percent. It could marginally increase its fiscal deficit target for FY20 from 3.4 percent.
Here’s what we expect from Budget 2019 from various sectors:
Samiksha Punamiya, Economist
As we saw a marginal increase in MSPs (Minimum Support Price) for the 23 commodities and FRP (fair remunerative price) for sugarcane in the last financial year, we expect further rise in MSP during the forthcoming budget. The rise will be on the back of an increasing cost of cultivation.
Meanwhile, the overall exports have been lacklustre since the last five years with agri exports down from ~$44 billion to $30 billion in 2019.
Though we have seen a pick-up in exports of processed food items since the last couple of months, overall agri exports including fruits and vegetables, cereals, spices, and beverages need to gain momentum.
In this respect, reworking on the pricing aspect of the Agri exports policy, which was presented in the last financial year is expected to be undertaken with special focus on the on-going trade war between US and China.
Moreover, the government is expected to launch oil seeds mission wherein focus shall be on increase in exports and decrease in imports of oilseeds over time.
A lot of deliberation has been taking place with ASEAN nations and timely revision in tariff values is undertaken by the government in this respect.
Lower than normal monsoons might be a risk for oilseeds and pulses production and can lead to an increase in import of oilseeds this year.
Consumption and retail sector:
Naveen Kulkarni, Head of Research
Government’s focus on increasing the rural spending will be positive for FMCG companies as rural consumption is an important growth driver for earnings of India Inc.
However, taxation increase on cigarettes by less than 10 percent is likely to have a negligible impact on cigarette volumes of ITC.
We are positive on ITC given the company’s ability to drive price hikes in cigarettes and sustaining profitability. Favourable valuations and increasing contribution from the FMCG segment are added positives.
Government focus on jobs creation and rationalising/raising tax slabs are likely to counter the consumption slowdown in discretionary space. The stocks to benefit from rising discretionary spending are Titan, Asian Paints, and Aditya Birla Fashion.
Capital goods sector:
Arafat Saiyed, Research Analyst
We expect, the government to continue its investment in infrastructure building.
In the interim budget, capital expenditure allocation had increased 6 percent YoY. The government exceeding the budgeted allocation in FY19 is encouraging but the increase is not very significant.
We expect higher allocation for capital allocation for the railways from Rs 64,500 crore and total railway capex from Rs 1.6 lakh crore proposed in the interim budget. This could help GFCF (gross fixed capital formation) for FY20 in case the private capex does not pick-up meaningfully.
The economic capex cycle is showing signs of revival and if the real estate sector improves then the shortfall in the growth of government’s capex will be compensated by the private sector.
Further, there could be an increase in allocation for Pradhan Mantri Gram Sadak Yojana from Rs 19,000 crore proposed in the interim budget.
Mitul Shah, Auto Analyst
As automobile sector has been facing turbulence for the last six months, we expect the government to rationalise GST to 18 percent for few automobile segments, as lower cost of vehicles would improve the affordability of consumers in this phase of a slowdown.
We also expect a scrappage scheme for older M&HCVs to motivate early replacement of the fleet by the transporters. In case the scheme would be applicable to vehicles older than 15 years, it would have a sizable positive impact on the M&HCV players.
In case it would be applicable to vehicles older than 20 years, the positive impact would be very minimal on the industry volume.
We expect concessions for hybrid/electric vehicles, given the government’s EV push. We expect an increase in agricultural support/credit to help spur rural demand for agri equipment and tractors.
Mona Khetan, Research Analyst
A clear vision on PSBs including any recap plan by the government in FY20 and stake sale and merger of the weaker PSU banks will provide clarity on their prospects and will be positive for the market sentiment as well.
Further, initiatives to spur investment demand could boost outlook on credit growth for the banking sector. Also, higher refinance support from NHB to HFCs/banks and any tax benefits for first time home buyers would be positive for banks and HFCs.
Additionally, the impetus to the real estate sector by way of taxation/benefits on housing projects will be positive for NBFCs exposed to the sector.
Oil & gas sector:
Yogesh Patil, Research Analyst
Upstream oil companies could hope for some relief in cess. Cess on domestic crude is at 20 percent of the oil price, and the government may cut to 10 percent to boost domestic oil production.
Cairn India has to pay the same cess for oil from its Rajasthan block. Most of the crude oil produced in India comes from the pre-NELP and nomination blocks and is liable for payment of cess.
New Exploration Licensing Policy (NELP) blocks like KG-D6 are exempt from payment of cess while pre-NELP discovered blocks like Panna/Mukta, as well as Tapti and Ravva, pay a fixed rate of cess of Rs 900/tonne.
If oil cess is reduced to 10 percent of the oil price then ONGC’s EPS could improve 12.5 percent in FY20E. Upstream oil companies—ONGC, Cairn India and Oil India—are likely to benefit.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.