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Last Updated : Feb 03, 2020 12:04 PM IST | Source: Moneycontrol.com

'FY21 fiscal deficit target of 3.5% unachievable, divestment key to reach goal'

Change in slab rates along with slashing Dividend distribution tax (DDT) are the major positives from the market.

Sunil Shankar Matkar
 
 
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The fiscal deficit target of 3.5 percent is ambitious and is not unachievable. This Budget has come up with provisions which will be revenue-generating for the government for example rise in custom duty on footwear and furniture, along with the imposition of cess on imported medical goods, Gaurav Garg, Head of Research at CapitalVia Global Research Limited- Investment Advisor said in an interview to Moneycontrol's Sunil Shankar Matkar.

Edited excerpt:

Q: What are your thoughts on the Budget and how would you rate it out of 10?

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A) The biggest reason behind the current economic slowdown is the collapse of private consumption, which contributes to nearly 60 percent to India’s GDP. Therefore, a revival in consumption is important for investment and for GDP growth to pick up. In order to achieve the $5 trillion economy target by 2024-25, nearly 12 percent nominal GDP growth is required. Enhancing infrastructure, consumption, investments and exports are drivers of the economy.

The fact that government is acknowledging the importance of wealth creation is also a good indication for citizens and businesses in the country. Focus on wealth creation could result in further opening of India's economy and make the economic recovery a less daunting task. However, we have not seen any big reform or concrete action plan in the Budget. Considering all the above-mentioned points, I would rate this Budget 6 out of 10.

Q: What are the major positives from Budget that market ignored and what dampened investors’ mood?

A) Change in slab rates along with slashing Dividend distribution tax (DDT) are the major positives from the market. This will act as a booster to the capital market and inflow may be turned out to be positive. Infrastructure push along with announcement for MSME's will enhance market sentiments as well. However, no announcements on LTCG and STT hurt the market sentiments and dampened the mood. But market has digested the Budget and with earnings ahead, mood should turn positive.

Q: What are your top five fundamental picks after the Union Budget 2020, which could give more than 20 percent return by next Budget?

A) The top 5 fundamental picks for this year would be Larsen & Toubro, UltraTech Cement, Infosys, HDFC Bank and Maruti Suzuki India.

Q: How do you read the Budget from stock markets and investors perspective?

A) Budget was not attractive. The market witnessed huge sell-off and benchmark indices shed more than two percent. We might see some volatility with negative sentiments for a few more days.

Now, all eyes are on RBI's next MPC meeting which is on February 6. Investors should wait and let the market settle before taking any new position. With a good set of earnings from Q3FY20 along with global sentiments market will choose its direction.

Q: Do you think the 3.5 percent FY21 fiscal deficit target set by the government looks achievable?

A) In our opinion, the fiscal deficit target of 3.5 percent (after considering allowed deviation of 0.5 percent) is ambitious and is not unachievable. This Budget has come up with provisions which will be revenue-generating for the government, for example, rise in custom duty on footwear and furniture, along with the imposition of cess on imported medical goods. The FM also proposed waiver on disputed tax receipts if paid before 31st March which will increase inflow of revenues. The government needs to take some solid ground-level steps so as to lower fiscal deficit target.

Q: Do you think the government be able to achieve its Rs 2.1 lakh crore divestment target though LIC IPO, IDBI stake sale?

A) In order to achieve fiscal deficit goal this divestment program will be major step as estimated revenues of the government are falling short significantly of its payments. LIC is a mammoth organization with a large chunk of market share and high penetration in the life insurance segment. Therefore, this IPO is going to be famous in the market and good proceeds can be expected from it.

Government of India holds 46.5 percent stake in IDBI. IDBI's market capitalisation is Rs 38,605 crore and government's stake comes up to Rs 17,951 crore which will contribute in government's target of Rs 2.1 lakh crore along with LIC IPO. This would definitely be possible if timelines are met as diluting stake in LIC is going to get a lot of resistance from various entities which could delay the entire process. Hence, starting early is very important to meet this massive target.

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.

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First Published on Feb 3, 2020 12:04 pm
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