10 key things brokerages expect from first Budget under Modi 2.0

All eyes are set on the first Union Budget under Modi 2.0 that is slated to be unveiled on Friday (July 5). 

With a clear evidence of economic slowdown and weak corporate earnings, Finance Minister Nirmala Sitharaman has her task cut out. Deep agrarian distress, high unemployment rates, the slowdown in automobiles and consumer demand, crisis in NBFC (non-banking financial company) sector and rising pressures in real estate and housing and muted capex cycle in the economy are some of the pressing issues that need addressal. 

Market experts expect the government to lay out a growth-oriented budget to pump-prime the economy. The priority, they say, should be to arrest the declining growth momentum and the crisis of confidence by being a little expansionary this time. Since inflation is expected to be benign in the short-to-medium term, many experts feel the government should let go of the fiscal deficit target of 3.4 per cent set in the Interim Budget in February 2019. 

The domestic market has not witnessed any pre-budget rally this time as the stocks surged in the run-up to the Lok Sabha elections and hopes of Modi government returning to power.

Here's a look at key things that leading brokerages expect from the Union Budget 2019:

ICICI Securities

The key focus area for government in this budget would be alleviating the ‘agricultural and rural stress, infrastructure development and spur-up consumption while the government would also likely lay-out five-year roadmap for economy and policy framework. The government is likely to maintain the disinvestment target of Rs 90,000 crore as set in the interim budget. Post budget, a positive surprise may flow from the tapping excess reserves from RBI which government could potentially derive to the tune of Rs 2.4 trillion.

We expect some benefits to flow from the curtailment of subsidies due to benign crude oil prices and savings through the DBT scheme. At the same time, with the strong the mandate, we can also expect some bold decisions in the areas of curbing black money, tax compliances, direct tax reforms, etc. 

Edelweiss Securities

The focus could shift to the rural/social sector. Income support scheme is already underway and ramp up in affordable housing may also be needed to give a fillip to the beleaguered real estate sector, the brokerage says. We do not expect material changes on the tax front.

Motilal Oswal Financial Services

The government needs to ensure that private investments pick up as that would be a key driver for long-term economic growth. Some of the other key factors to look out for in the Budget would be the investment plans for job creation, increasing tax compliance, simplification of GST, attracting foreign investments, divestment plans and recapitalisation of banks. 

HDFC Securities

We expect the government to fund its election promises and maintain policy continuity (focus on agriculture, rural development, infra spending). Though there is a clamor for fiscal expansion given the current trying circumstances (like in FY02 and FY09), reflation need to be done in a measured way and reforms have to be taken forward. Given the rising populism across the globe, it would be prudent not to pander to short-term needs in a way that the medium-term structure of the economy is damaged.

YES Securities

The most pertinent measure to boost the economic growth would be providing capital buffers like a Micro, Small & Medium Enterprises (MSMSE) fund, to make liquidity widely available. Big investment stimulus through the Budget though, can come only after tax collection rises materially. However, we do expect the usual 14-18 per cent growth in budgetary allocation to infrastructure spending. The rest of the commitments for infrastructure will come from Internal and Extra Budgetary Resources (IEBR).

Elara Capital

The government will find it extremely challenging to retain the fiscal deficit target of 3.4 per cent amid dwindling revenue and competing priorities for government spending. Slippages could exceed 50 basis points (bps) but the government will look to limit it to 20bps by budgeting for 5G auction revenue and optimistic revenue projections. Expect a fiscal deficit target of 3.6 per cent on 5 July 2019E.

Prabhudas Lilladher

There could be a thrust on improving drinking water availability and river linking. We expect the imposition of tax on buyback of shares and tax relief to the middle class under basic tax exemption or higher limit in 80CC. Tax-free bonds may be reintroduced to fund long-term infrastructure projects. Scrappage policy for commercial vehicles and incentives for creating EV charging infrastructure.

Anand Rathi Financial Services

Expect the Budget to positively impact the equity market, especially FMCG, small durables, two-wheelers, real estate and infra, road and railway-related companies. There could be a one-off increase in fiscal deficit to Rs 8 trillion or 3.8 per cent of GDP - an increase of Rs 1 trillion over the FY20 interim Budget target.