The finance minister (FM) has a tough job on hands this year. The government’s finances are in a mess, crude oil prices are firm, industrial growth has slowed down considerably and the capital investments in the infrastructure sector are sagging. The FM does not have a magic wand to solve the major issues through one policy document in such difficult conditions. But hopes are high and the recent reports from leading broking houses seem to suggest that equity market players are expecting the FM to revive the reform process and address some critical issues in the forthcoming budget. The wish-list includes:
Take steps to limit fuel and fertiliser subsidies
Provide roadmap to bring down the current account and fiscal deficits
Boost investments in the infrastructure sector and revive industrial production
Limit expenditure and boost revenues by removing fiscal incentives
Rationalise tax structure and enhance exemption limits for personal income tax
The list is much longer and there are many more issues people would like the FM to address at the earliest. But it is practically impossible for the FM to even come out with a credible plan on the five basic points mentioned above.
My personal sense is that the FM would play it safe and come out with a rather mundane budget. After all, the parliament has not functioned properly for almost a year now and any dramatic move will be fought tooth and nail by the opposition parties. Yes, the market will not like it. The index might even correct by a few hundred points. But do not worry, things would be back to normal and business as usual after the initial knee-jerk reaction. Historically also, the equity market normally fell after the budget. But the market tends to recover sooner than later.
But this does not mean it would be a non-event. Some of the measures/proposals would affect individual sectors/companies. Keep a watch on it.
The automobile sector could be on the losing end as the excise duty reduced earlier as part of a fiscal stimulus is expected to be withdrawn in the budget. There is also a possibility of additional levy on diesel vehicles. Mahindra and Mahindra, and Maruti Suzuki would get affected by it.
You could expect some excise duty hike in tobacco and IMFL which could affect stocks like ITC and United Spirits. But a possible increase in the personal tax exemption limit would be a positive move for the overall FMCG sector.
Power generation and cement companies could benefit from the possible reduction of import duty on thermal and coking coal.
Lastly, there would be some tinkering around with the allocations for the railways, infrastructure, social and rural development schemes.
....more info
Take steps to limit fuel and fertiliser subsidies
Provide roadmap to bring down the current account and fiscal deficits
Boost investments in the infrastructure sector and revive industrial production
Limit expenditure and boost revenues by removing fiscal incentives
Rationalise tax structure and enhance exemption limits for personal income tax
The list is much longer and there are many more issues people would like the FM to address at the earliest. But it is practically impossible for the FM to even come out with a credible plan on the five basic points mentioned above.
My personal sense is that the FM would play it safe and come out with a rather mundane budget. After all, the parliament has not functioned properly for almost a year now and any dramatic move will be fought tooth and nail by the opposition parties. Yes, the market will not like it. The index might even correct by a few hundred points. But do not worry, things would be back to normal and business as usual after the initial knee-jerk reaction. Historically also, the equity market normally fell after the budget. But the market tends to recover sooner than later.
But this does not mean it would be a non-event. Some of the measures/proposals would affect individual sectors/companies. Keep a watch on it.
The automobile sector could be on the losing end as the excise duty reduced earlier as part of a fiscal stimulus is expected to be withdrawn in the budget. There is also a possibility of additional levy on diesel vehicles. Mahindra and Mahindra, and Maruti Suzuki would get affected by it.
You could expect some excise duty hike in tobacco and IMFL which could affect stocks like ITC and United Spirits. But a possible increase in the personal tax exemption limit would be a positive move for the overall FMCG sector.
Power generation and cement companies could benefit from the possible reduction of import duty on thermal and coking coal.
Lastly, there would be some tinkering around with the allocations for the railways, infrastructure, social and rural development schemes.
....more info