A slippage in the fiscal deficit beyond 4 percent will come as a shock, says Vinay Pandit of IndiaNivesh.
India’s fiscal deficit is bound to slip to 3.7 percent due to the cut in corporate tax, slow capex and consumption growth, Vinay Pandit–Head of Institutional Equities, IndiaNivesh, said in an interview to Moneycontrol’s Kshitij Anand.
Q) What are your expectations from the Budget? Do you think it will be a Budget that will count considering the fact that growth estimates are heading south?
A) The government has taken ample steps to boost the supply side. To support the demand side, we expect the only major change to be in the slabs for personal income tax, which may be enhanced to increase the number of tax filers, leave more cash in hand, and hence boost demand.
However, to compensate for this, we may see some increases in indirect taxation, which will help maintain the current fiscal deficit expectations.Q) Do you think the government will be able to meet this fiscal-deficit target? If not, what is the extent of slippage the market will be comfortable with?
A) No. The fiscal deficit is bound to slip to 3.7 percent due to the cut in corporate tax, slow capex and consumption growth and slower than the required pace of divestment.
Markets should be comfortable with this number of 3.7 percent, which I believe is already factored in. Anything beyond 4 percent will come as a negative shock.Q) Which are the sectors likely to hog the limelight in the Budget and why?
A) Defence, banking, auto, infrastructure and consumption will be the key sectors to watch out for in the Budget 2020. The government needs to upgrade, enhance and significantly bring in a quantum jump in their defence stockpiles.
Banking, auto, and consumption will be in focus owing to the government constantly working towards passing on the benefits of interest rate cuts as well as addressing demand-side factors such as higher tax slabs (effectively lower net tax rate within the Rs 20 lakh bracket), boosting demand for consumption and the auto sector.
Infrastructure is another area the government has continued to focus on through various measures such as rural electrification, electricity for all, affordable housing, green energy corridor, dedicated freight corridor and waterways among others. We expect continued allocation to similar projects.Q) What are the expectations from the Budget 2020 from investors or market perspective?
A) Budgets have over the years come to contain fewer frills. Barring the relaxation in personal tax slabs/rates and clarity on capex plans for defence and infrastructure, there may be little to watch out for in the Budget.
The focus will be on the RE for 2019-20 on fiscal deficit and BE for 2020-21. Anything above 4 percent will be taken negatively.Q) Do you think the infrastructure sector will turn out to be a beneficiary in the Budget?
A) Yes. The government has several infrastructure plans currently being executed or in the pipeline such as green energy corridor, express highways, dedicated freight corridor, waterways, etc.
We expect a continued focus on these areas in the current as well as the budgets in the forthcoming years.Q) The government struggled to meet the divestment target in FY20. What are the estimates you are factoring in for the next fiscal?
A) The divestment targets for the coming year may cross Rs 1 lakh crore only if divestment in Air India and BPCL and reduction in equity to below 50-51 percent in several corporations are done efficiently and in a timely manner. Otherwise, we may end up with a figure in the range of Rs 80,000–90,000 crore.Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.