We expect the government to come up with some populist measures in the Interim Budget, and these measures would benefit the essential and discretionary demand-driven sectors, Arun Thukral, MD & CEO, Axis Securities, said in an interview with Moneycontrol’s Kshitij Anand.
Q. What are your expectations from the upcoming Interim Budget?
A. We expect the Interim Budget to be tilted towards populism on the backdrop of loss faced in three states and alliance amongst the opposition parties. We expect the government to take a few measures to alleviate the rural distress.
The measures can be in the form of universal basic income for the population below a certain level of income or input assistance scheme for farmers on the lines of ‘Ryathu Bandu’ in Telangana wherein Rs 4,000 per acre per season is paid to farmers to take care of agricultural inputs like seeds, fertilizers, etc.
The central government scheme is likely to cover the marginal and landless farmers who undertake tilling on contract, unlike the Telangana scheme which offers the help to only the farmers who own the land, irrespective of land size.
Eligibility of owning less than 5 acres would cover around 85 percent of the farmers in the country and benefit an estimated 15 crore farmer households.
Finance Minister may raise the income tax exemption threshold for middle-class taxpayers from the present Rs 2.5 lakh to Rs 4 or 5 lakh. In case of change in the exemption bracket, the tax rates for the slabs may also change much to the relief of all the employees.
There can be some tinkering with the deduction under Section 80C like increasing the cap to Rs 2.5 lakh (from current Rs 1.5 lakh) to incentivize savings.
A couple of measures like providing tax benefits to pensioners and/or lowering of interest rates on housing loans to woo middle class can also be considered. If announced, these tax benefit decisions will help the salaried and the middle-class population to save more money.
Savings limit hike along with income tax benefits and concession on home loan interest will put more money in the hands of the salaried people and middle class.
Q. What according to you should be ideal portfolio allocation ahead of Budget?
A. We expect the government to introduce some populist measure in the interim budget. The populous measures would benefit the essential and discretionary demand-driven sectors (FMCG, consumer durables, cement, retail, etc.) as more money would get in the pockets of general public who in turn would spend on these sectors.
Any measure (like enhancing tax exemption limits or low interest on housing loans, etc.) to woo the middle class would likely push higher spends in the discretionary spends sector like automobiles thus benefiting the auto OEMs and ancillaries. Hence, one can position himself in these sectors with a view on budget.
Q. Do you think we could see a knee jerk reaction if the government is unable to meet its fiscal deficit target?
A. Due to additional expenditure on account of the pro-poor/farmer scheme and shortfall in the GST revenues, the fiscal deficit for FY20 is likely to breach the threshold of 3.5 percent in the year when it is implemented but given the political compulsions, the government may bite the bullet.
It must be remembered that the government has declined the demand for nationwide loan waivers that would have been one-time affair but the input support on the above lines would be recurring expense every year.
Hence, if any major populist measure (with very high outgo) is undertaken, there are high chances of reaction in the debt market. Since the government is the largest borrower, the yields would rise. The expectations of a rate cut, which the equity market is building on the back of the low inflation and tepid growth, would get thrashed leading to some short-term correction.
Q. What are your views on the biggies that have reported their Q3 results such as RIL, HUL, Wipro and HDFC Bank?
A. All the four stocks have reported excellent growth for Q3FY19. HUL reported 10 percent volume growth on the back of equally strong quarter last year. RIL reported strong earnings from the telecom and retail segment.
Wipro too reported a good set of numbers and HDFC Bank continued its performance of reporting 20 percent earnings growth with stable asset quality. In addition, the IT majors, Infosys and TCS too had reported a good set of numbers.
IT companies are showing healthy order wins and are expected to end the year by beating the earlier guidance. The results season shows that the demand outlook is robust and there exists ample scope of growth for serious players.
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