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Last Updated : Feb 03, 2020 11:28 AM IST | Source: Moneycontrol.com

Top brokerages on Budget 2020: No quick revival of growth; PSU stocks to feel the pinch

Crisil said the planned budgetary measures are not expected to provide a short-term boost.

 
 
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The Budget 2020 got mixed reviews from economists, experts and financial institutions.

At a time when the economy was struggling, the Budget was expected to bold on tax reforms and government capex.

But, the government chose to balance spending and fiscal health, which may not give a quick push to growth, economists and experts say.

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Economists at domestic rating agency Crisil doubt that the Budget will attain its targets on growth, given the rural boost and thus consumption and revenue realisations, news agency PTI said.

Crisil said the planned budgetary measures are not expected to provide a short-term boost.

Moreover, rating agency is of the view that if at all the GDP were to clip at the projected 5.7-6.6 percent in FY21, it will be thanked more to the base effect-FY20 growth at an 11-year low of 5 percent, down from 6.1 percent in FY19 on the back of a 48-year low nominal growth of at 7.5 percent in FY20.

Critical to this forecast is the assumption of a normal monsoon and benign global crude oil prices.

Following the Budget, global financial firm Nomura suggested avoiding meaningful exposure to PSUs in the current slow-growth environment. Nomura, however, is overweight on selective financials.

The financial firm is of the view that the removal of DDT will impact the value of new business (VNB) margins and embedded value (EV) of life insurers. It removed ICICI Pru from its model portfolio.

"Doubling of insurance premiums will lead to 2-4 percent PAT hit for large private banks. It will lead to a 5-6 percent PAT hit for PSU banks as well as the cost of insuring deposits could go up for banks," Nomura said.

Bank of America Merrill Lynch (BofAML) said it did not find any major stimulus in the Budget 2020.

The financial firm thinks the market disappointment will last a short while and the recent mid-cap excitement could lose steam.

BofAML said the GDP growth should improve on base effects, monetary stimulus, recovery in auto and MSCI India should continue to move with EM.

BofAML, too, is of the view that the removal of investment exemptions could hurt insurance companies, while higher cigarette taxes could dampen volume growth for the sector and large divestment target could retain pressure on PSU stocks. However, it said it continues to prefer financials.

Besides, the foreign firm said the extension of tax breaks on affordable housing won’t affect the total demand trends.

Credit Suisse said the focus on headline fiscal consolidation in the Budget is encouraging and sticking to FRBM prescribed ‘escape clause’ limits keep macro risks in control.

"Limited cut in government spending moderates one pro-cyclical headwind against growth. States appear to be bearing a large part of the tax slippages and they remain a risk," said Credit Suisse.

However, the brokerage warned that the lack of policies to target stress in realty and financial services may disappoint the market.

"Growth may remain subdued for longer than the market expectations. Lower interest rates remain a necessary condition for growth revival," it said.

Among the stocks, Credit Suisse is positive on HavellsCrompton Greaves Consumer Electricals and TTK on higher customs duties. Besides, it is positive on smaller private banks on higher deposit insurance.

On the other hand, it is negative on large banks on the higher cost of funds. It is also negative on NBFCs as the expectations pre-budget were elevated and on life insurers as the effective tax rate is higher.

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.
First Published on Feb 3, 2020 11:28 am
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