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Keep faith… take advantage of this downfall
The market expected this budget to bring in measures to jump-start the economy. This high expectations was built-up in-spite of weak fiscal with a hope that government will go for higher spending, increase personal income and support industries. But the government has adopted a neutral approach with a belief that economy will stabilise supported by measures already undertaken in the last 6months. We do expect the economy to do better in the coming years, but the government should have done more in this budget.
* The budget assumes a conservative nominal growth of 10% in FY21, which could be 6% to 6.5% real GDP growth compared to expected 5% in FY20.
* Fiscal deficit is high at 3.8% for FY20E, due to loss of revenue, while targeted 3.5% for FY21E is below the requirement. A higher target would have provided a strong signal to the market about government’s intent.
* Language of the speech was to double the farmer income, however in reality rural spending was capped with a 3% increase. Much will depend on the efficiency and implementation of the announced schemes .
* Other than Infrastructure and Aquaculture, we do not have any major sectoral winners, however increase in custom duty is positive for ‘Make in India’.
* Given overreaction of the expectations built by the market, this negative sentiments may continue in the coming weeks. The big picture is intact supported by improvement in domestic & world economy. We expect 9% return in the main indices and above normal return in the broader market for next one year.
Fiscal target should have been higher...
The fiscal deficit for FY20 increased to 3.8% due to fall in revenue; driven by slowdown in economy, corporate tax cuts and other measures announced in the last 6months. The target for FY21 is fixed at 3.5% due to limited growth expected in tax and other revenue with subdued forecast of expenditure. The market may have taken it positively if the target was higher with more capex to push the economy.
Net tax revenue is expected to grow by only 8.7% in FY21, while FY20 growth was 14.2%. Non-tax-revenue is expected to grow by 9.2% in FY21 with 64% increase in other-non-tax-revenue. Divestment incomes is forecasted at Rs65,000cr in FY20 and Rs2,10,000cr in FY21, while actual in FY20 till date is sub Rs20,000cr. The forecasting of the numbers needs to be done in a more realistic manner.
Key winners & losers...
The important winning sectors are:
* Aquaculture: .
* Infrastructure: Due to huge pipeline of projects total size of Rs103 lac cr. But more financial support is needed from the government.
The loser sectors are:
* Insurance, AMCs
* Consumer Appliances
Disappointments are mainly due to very high expectations which was built in the market. This setback is not going to effect the market’s wealth creation since the main factors required to develop the economy & market already exists in the system. This is supported by the corrective & supportive measures undertaken by the government during H2 CY19. The big picture is intact and the market will go back to basics and look for improvement in the economy supporting by fall in stressed assets. This budget does not change our thesis of 15% growth in earnings from FY19 to FY21. We stick with our one-year-target of 12,700 for Nifty50, which is 9% return during which we expect mid and small caps to outperform.
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