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Last Updated : Feb 01, 2019 08:44 PM IST | Source:

Budget Reaction: What are mutual fund houses saying?

he announced tax sops for the middle class. One of the biggest announcement was the doubling of income tax exemption limit to Rs 5 lakh

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The interim Budget unveiled by Interim Finance Minister Piyush Goyal is likely to stimulate demand and boost economic growth, with a slew of sops for the middle class, farmers and workers in unorganised sector leading to more disposable income in their hands.

Among other stimulus, Goyal announced farm packages to support farm incomes and reduced the tax burden for middle class voters.

Interim Finance Minister Piyush Goyal announced a relief package of Rs 75,000 crore under a new scheme PM Kisaan Samman Nidhi for distressed farmers who have seen their incomes stagnate because of plunging prices, barely enough to pay for loans and input costs.The scheme will be applicable from December 1, 2018, and will benefit 12 crore farmers.


Goyal also said Rs 60,000 crore was allocated for MNREGA for FY20 and proposed assured income to small farmers. He said the government will provide more funds for MGNREGA if required.

Further, Finance Minister also announced a move that will benefit farmers across India. Goyal announced 2.5 percent interest subventions for farmers struck by natural calamities. Along with that, he also announced 2 percent interest subvention for animal husbandry and fisheries sector.

In the budget, he announced tax sops for the middle class. One of the biggest announcement was the doubling of income tax rebate to individuals earning up to Rs 5 lakh per annum. The Finance Minister announced a tax rebate for income up to Rs 5 lakh per annum. Standard deduction was raised to Rs 50,000 from Rs 40,000.

FM Goyal also announced tax exemption on notional rent on second self-occupied house. The capital gains exemption under Section 54 was made available on two house properties.

The FY20 fiscal deficit target is set at 3.4 percent, while total expenditure target for FY20 set at Rs 27.84 lakh crore and the capital expenditure for FY20 set at Rs 3.36 lakh crore.

The FY19 fiscal deficit was pegged at 3.4 percent of the Gross Domestic Product (GDP). The current account deficit was pegged at 2.5 percent of the GDP. The FY20 gilt repayment was pegged at Rs 2.36 lakh crore.

Below are the comments of fund houses on Budget 2019:

NS Venkatesh, Chief Executive, Association of Mutual Funds in India

“Budget is pro growth blended with fiscal prudence. Some of the steps like PradhanMantri Kissan Samman Nidhi, the new initiative aimed to take care of the distressed farmers, the pension scheme for the unorganised sector workers and the raising of the income tax exemption limits are very progressive and most welcome.

“Mutual Funds sector would benefit from the additional cash in the hands of the farmers and the increased savings for the salaried class. The other welcome step is the increase in the TDS limit on deposits which would ease the hardships faced by the depositors.”

G Pradeepkumar, Chief Executive Officer, Union Mutual Fund

"This is a dream budget for the middle class and for farmers. With the increase in exempted income, increase in standard deduction, increase in limit for TDS etc. we can expect more disposable income in the hands of the people. The outlay for farmers should go a long way in reducing the stress in the agriculture sector. Mutual funds can also expect more inflows because the salaried class can use the extra disposable income for investments. Overall, the budget is very positive for the stock markets".

Raj Kumar, Whole Time Director & Chief Executive Officer at LIC Mutual Fund.

"The budget is positive for consumption & rural economy. We don’t see anything major negative on fiscal  Tax compliance will also improve due higher slabs & ease which government is aiming at &  lots of money is being given  to the tax payers by giving various benefits on direct taxes like increasing the threshold to 5 lacs, increasing the standard deduction by addition 10 thousand, tax rebate on notional income from second home & minimum support of Rs 6000 to Farmers. All these measures will fuel consumption & increase the top line of companies. However, there is slippage in fiscal deficit & likely increase in borrowings may have bearing on bond market. "

Manish Gunwani, CIO –Equity Investments, Reliance Mutual Fund

“Budget is pro consumption as significant stimulus has been provided for farmers and middle class. This will give the demand boost to consumer oriented segments particularly the low ticket consumption items. Several measures have also been announced to support the troubled real estate sector. There is some slippage in the fiscal math but it's well within the limits and doesn't lead to any meaningful deviation from long term fiscal consolidation. In normal course, such expansionary budget would have led to inflationary pressure. However, given the recent weakness in domestic demand along with prevailing low inflation, this should not translate into higher inflationary impulse in the coming quarters. As we continue to expect the RBI to pursue easy monetary policy, the combined effect of fiscal and monetary stimulus would lead to sustainable growth recovery.”

Navneet Munot, Executive Director & Chief Investment Officer, SBI Mutual Fund

“As expected, the budget kept its focus on rural, small and medium enterprises and middle-class households. While this is an interim budget and the actual realization of the visions (such as the changes in direct taxes in favour of the middle-class) will have to wait till the roll-out of the full budget post the general election, it does set a narrative.

The rising inequality and the unique nature of a large un-organized sector in the Indian economy make it imperative for a government to not only worry about the overall growth and reforms but the distributional aspects of growth i.e. a more equitable growth. India is flirting with its own version of Universal basic income and social sector benefits. Some of the measures such as health insurance scheme, guaranteed income for small and marginal farmers, and mega pension schemes work towards providing a social security net and enhance the demographic potential of the economy.

Coming to the markets, the thrust towards income enhancement is positive for the consumption oriented sectors. The bond market will have to grapple with the resultant higher market borrowing. The bond market is faced with a mix of push and pulls factors. While the extremely muted headline inflation, stable external account dynamics and dovish bias in key global central banks augur well for the Indian debt market, the high gross market borrowing and the large emphasis on off budget borrowing requirement would prevent a material rally in the yield. From equity market perspective, budget would be seen as a positive event given the continued focus on income enhancing measures. Market’s focus will shift back to global cues, political developments and earnings trajectory.”

Lakshmi Iyer, Chief Investment Officer (Debt) & Head Products, Kotak Mahindra Mutual Fund

“The key focus among other things for bond markets was the fiscal math. While the fiscal deficit as  percent of GDP has been pegged at 3.4 percent, the gross borrowing program of INR 7.10 lakh cr has spooked market sentiments. Market is also worried about how the revenue side estimates will actually pan out. Additionally, key to note is that ~60 percent of net government supply in FY19 was cushioned by RBI OMO bond purchases. Uncertainty on how much would be the quantum of OMOs and will they actually be needed will be a uncertain sword hanging in the market.

For now we expect bond yields to remain at current elevated levels with sideways movement till MPC meeting slated for next week offers some clarity. Short duration funds are a better suited option for investors to participate in fixed income.”

Kumaresh Ramakrishnan, Head-Fixed Income, DHFL Pramerica Mutual Fund.

“The Government presented the fifth Union budget of its five year term today. Being an election year, the budget was an interim one and hence did not have details spelt out on capex related spending.
The full budget which is likely in July 2019, would have more details on spending and revenue mobilization. It is likely that the fiscal deficit numbers could face some more pressure for FY 20 if some spending not included presently are factored in at the July budget.

Borrowings are higher both for the current fiscal (by INR 37000 cr) and FY 20 are slightly higher to finance the higher than expected fiscal deficit. Higher government borrowing is likely to have a near term negative impact on bond yields at the mid to the long end. "

Arvind Chari, Head Fixed Income & Alternatives , Quantum Advisors Pvt Ltd

"We have now had the 4th consecutive year of compromise on the fiscal consolidation and the targeted glide path. The budget is inflationary with overall expenditure at 13 percent along with the new spending on farmer income support.

Bond markets may react negatively as market borrowing numbers for both the current fiscal and next fiscal are higher than market assumptions. The RBI and the MPC may view the fiscal compromise, aggressive assumptions and the potential inflationary nature of the budget and leave interest rates unchanged."

Akhil Mittal, Senior Fund Manager (Fixed Income) at Tata Mutual Fund

“With potential of stoking inflationary pressures, the budget also pushes the Fiscal consolidation away for some time, especially when there is an increased doubt on revenue generation.

The FM has tried to address agrarian issues through a farm package (PM Kisaan Samman Yojna), though the allocation pegged t INR 750bn does not disturb the fiscal maths in big way.

The revenue targets, especially on GST collections and Disinvestment for FY20 looks quiet stretched and optimistic.

As far as RBI is concerned, we believe the budget pushes back possibility of rate cut in near future and expect RBI to highlight potential upside risk to inflation on account of slip in fiscal.

We believe that there would be pressure on bond yields and expect new 10 yr g-sec to trade in range of 7.20 percent - 7.60 percent in medium term and take further directional cues from incoming macro data.”
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First Published on Feb 1, 2019 08:44 pm
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