We think a bigger event like the general election is far more difficult to predict than the Budget itself. So, ahead of the election, we are overweight in private banks, select IT, industrials and real estate.
We are not really looking at a pre-Budget kind of call because the manoeuvring with the government is limited and it is pretty much clear what needs to be done. And, as we have said, elections are a bigger event this year than the budget itself, Suhas Harinarayanan, Head-Institutional Equity Research at JM Financial Institutional Securities Ltd, said in an interview with Moneycontrol’s Kshitij Anand.
Q. What are your expectations from the upcoming Interim Budget?
A. The Centre has been unable to live up to its promise of improved procurement through the revised MSP formula announced in the Union Budget 2018-19.
The consequence has meanwhile manifested partially in the form of BJP’s defeat in the state elections in three majorly rural states – Madhya Pradesh, Rajasthan, and Chhattisgarh.
Therefore, as the general elections are just around the corner, the interim budget is the last opportunity for the incumbent government to woo a larger section of the society.
It is likely to be more than just a vote-of-account and for now, we expect some alterations to the expenditure schemes. While a package for farmers is almost a given after Finance Minister's statement to tackle specific agricultural challenges that “can’t afford to wait,” there are also hopes that the government may announce some relief measures on the direct tax front.
Q. What are your views on the central government meeting the fiscal deficit target?
A. The Centre’s fiscal faces upside risks due to i) shortfall in revenues, arising mainly from less than expected GST and telecom spectrum auctions collection, and ii) unaccounted expenditure (mainly fuel, fertiliser subsidy).
According to our internal estimates, even if we take into account i) higher-than-budgeted income taxes (by Rs 50,000 crore ), ii) interim RBI dividend worth Rs 20,000 crore, iii) capex cuts and iv) achievement of the divestment target (Rs 80,000 crore), the Centre would still slip the budgeted target by 20bps.
We believe this much of slippage is already being factored in by the market. However, by way of i) deferring the unaccounted subsidies until next year, ii) positive surprise from income tax collections (over and above Rs 50,000 crore) and iii) transfer of some RBI capital, the government can meet the 3.3 percent target.
Q. The FM in a speech highlighted that the government would address issues confronting the farm sector. What kind of sops are you factoring in your estimates?
A. The farm relief package is expected to be in the form of a direct transfer to farmers. However, since the government has a dual target to achieve i.e. i) to signal credibility for implementation of such a scheme and ii) to adhere to the fiscal consolidation process, it is expected to allocate only a part of the total cost in FY20, consisting largely of subsumed existing agri-schemes.
The allocation for such agri-schemes that could be subsumed already stood at around Rs 50,000 crore in FY19. This means the incremental burden on the Centre’s finances would be lower in FY20.
From FY21 onwards, however, a pick-up in GST revenues and possible higher devolution to states by the 15th Finance Commission could help in transferring some part of the burden to states for the complete roll-out of the scheme.
Q. What according to you should be ideal portfolio allocation ahead of the Union Budget?
A. We think a bigger event like the general elections is far more difficult to predict than the Budget itself. So, ahead of the elections, we are overweight on private banks, select IT, industrials and real estate.
Q. Historically, which are the sectors that have been in the limelight ahead of the Union Budget and what are you recommending your clients and why?
A. As we have mentioned, we are not really looking at a pre-Budget kind of call because the manoeuvring with the government is limited and it is pretty much clear what needs to be done. And, as we have said, general election is a bigger event this year than the budget itself.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.