We expect Budget to be more than a routine Vote On Account. The government may make announcements in order to please rural voters and the urban middle class. These could include cash transfers and some changes in the income tax slabs.
Sectors like rural consumption, infrastructure development like capital goods, autos, FMCG and Consumer durables are likely to benefit from the Budget, Vivek Ranjan Misra, Head of Fundamental Research at Karvy, said in an interview with Moneycontrol’s Kshitij Anand.
We expect it to be more than a routine Vote On Account. The government may make announcements in order to please rural voters and the urban middle class, he added.
Q) What are your expectations from the upcoming Interim Budget? Arun Jaitley has already highlighted that it would be more than just Vote on Account.
A) By all accounts, we expect it to be more than a routine Vote On Account. Until now, the government has followed a path of fiscal prudence, this being an election year, the government may make announcements in order to please rural voters and the urban middle class. These could include cash transfers and some changes in the income tax slabs.
Q) Most experts are of the view that government might not be able to meet its fiscal deficit target. Do you think we could see a knee-jerk reaction due to that?
A) GST collections do indicate that meeting the fiscal deficit target will be tough. We believe that the slippages will be minor. The government will attempt to keep the slippage low either by expenditure control, which is most likely to be met by controlling capex. Also the government may ask PSU to hike dividends.
Q) The FM recently said that the government would address issues confronting the farm sector. Those changes would be good for consumption but not necessarily fiscal deficit. What kind of SOPS are you factoring in your estimates?
A) Firstly, the farm sector needs structural reforms that would take time to have an impact. However, some steps to alleviate stress are highly likely.
The PM has rules out farm loan waivers. The most likely step would be a cash transfer, which may be in lieu of subsidies. The mechanism could be via DBT or using Kisan Credit Card.
Certain other measures are likely, like changes in crop insurance scheme. Universal Basic Income (or UBI) may figure in party manifestos, but given the short period is unlikely.
Q) What are your views on the biggies which have come out with their results for Q3 such as RIL, HUL, Wipro as well as HDFC Bank?
A) Results have largely been in line, we do expect that as the earnings season progress, earnings in the quarter are likely to be a bit subdued, as margins are likely to be squeezed due to higher raw material prices, while raw material prices have declined since mid November, this may help boost margins in the next quarter i.e. Q4FY2018-19.
Q) What according to you should be ideal portfolio allocation ahead of Budget?
A) Our portfolio allocation is driven by our outlook for 2019. Overall, we expect that equities will be a bit subdued ahead of the election, but if a stable, reform-oriented government were to assume power, equities could do well in the second half.
We believe conditions are in place for an earnings recovery and the banking sector is past its worst, and this would support a rally.
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