sortiwa
[ad_1]
The Union Budget will have important implications for the four-key framework — capex, exports, policy and credit — from which we expect an earnings cycle inflection ahead. We expect three keys – property, exports and credit cycle – to be supportive and any measure to support them will aid visibility. Post-Budget volatility has been high, especially in tax-related events. On a headline basis, we expect fiscal deficits of 3.7%/3.4% in FY20/21.
Our discussions with investors suggest equity markets may welcome a fiscal slippage, although the impact on bond yields or the currency will also ultimately matter for the equity markets. Beyond an immediate respite in growth, a credible glide path ahead and the narrative on how this can create a sustainable growth cycle will also matter. However, our experience in recent years is not supportive; the government focus on infrastructure spending as well as leverage-aided resilient consumption growth have failed to drive a sustained growth cycle.
Property, from our four-key framework, is a key element underpinning our view of an earnings inflection cycle ahead. Any incentive in the Budget to stimulate demand can drive a sharper upcycle. The property sector represents a low-hanging fruit and has significant downstream linkages. In our view, the potential wealth and credit multiplier impacts may be under-appreciated by both markets and India’s policymakers.
Diluting long-term capital gains tax on profits from the sale of equities could boost near-term sentiment. We think markets will also monitor measures that seek to include bonds in global indices. The recent increase in foreign-shareholding limits has potential to attract up to $18 billion of inflows into equities in 2020, if companies do not independently lower the limits.
In the wake of the big corporate tax rate cut reforms, some investors expect substantial cuts to personal income-tax rates. However, the room for fiscal manouevre is limited unless the government is willing to contemplate material fiscal expansion and/or back it with proceeds from privatisation. The impact of lower income-tax rates may be limited on a miniscule proportion of taxpayers. However, in the event of income-tax cuts, consumer discretionary and autos would be likely beneficiaries.
The recently announced National Investment Plan (NIP) is ambitious, but the near-term spike is especially worth noting: it proposes to double infrastructure spending in FY19-21. Any innovative financing methods to support this or even incentivise private sector participation merits tracking this space and could be create an upside scenario.
After likely lower collections for FY20E due to delays in the privatisation process, we forecast disinvestment receipts to almost double from 0.5% to 0.9% of GDP. This is also a material reforms measure.
Come what may, given the recent growth slump, investors will be monitoring this Budget closely.
(Gautam Chhaochharia is Head of India Research at UBS. Views are his own)
[ad_2]
Source link
