Finance minister Nirmala Sitharaman presented the Union Budget 2020 on Saturday, with some of the key announcements being the new optional personal income tax slabs, proposal to raise deposit insurance cover from Rs 1 lakh to Rs 5 lakh and the initial public offering (IPO) of the state-run Life Insurance Corporation of India (LIC). Notably, equity markets witnessed a major selloff on Saturday as the budget failed to provide any incentives to revive growth in an otherwise slowing economy. Here’s look at what research firms are making of Sitharaman’s second budget speech:
Morgan Stanley
Ridham Desai, head of India Equity Research at Morgan Stanley, said that the stock market’s reaction to the Union Budget 2020 was fair as investors expected this Budget to be “different” but it was “just another”.
“Market’s reaction is fair because, in the run-up to the Budget, there was some expectation building up that this may be a platform for some major announcements. It is not necessary. We have seen in recent years that the Budget is not being used as a platform for announcements. A lot of announcements and reforms are made outside the budget platform. But nevertheless, the market did get signals from the government that maybe this is going to be a different type of a Budget… and to the extent that it was just another budget,” Desai told CNBC-TV18.
Crisil
Ratings agency Crisil said the measures announced to trigger growth in the Union Budget 2020-21, including the widening of the fiscal deficit target, would not result in major impact for the slowing economy in the short term. The budget had set the fiscal deficit target for 2020-21 at 3.5%, higher than the previous target of 3%.
The report noted that the additional fiscal space is to be funded by aggressive disinvestment, asset monetisation and telecom revenue targets, optimistic tax-buoyancy assumptions and some tightening in overall expenditure. “The government has aimed at some measured moves in the budget to bolster growth. Most of these, however, are not expected to provide a short-term boost,” it said.
BNP Paribas
Manishi Raychaudhuri of BNP Paribas said: “Budget 2020 was a bit disappointing. We were expecting much stronger degree of attempts at growth stimulation. Even the personal income tax cuts that the finance minister (FM) talked about they would be more than neutralised by the fact that to opt for them some would have to give up pretty much all the exemptions. So the person may actually end up paying more.”
According to him, the encouraging part of the budget was the incentives given to start-ups in the form of tax breaks on employee stock options (ESOPs). Also, the incentive to sovereign wealth funds on infrastructure investments till March 2024 and the increase of 18% on capital expenditure were the other main positives in the budget.
Kotak Securities
Kotak Securities said the 2020 Union budget presented last week failed to impress investors with its distinct lack of a major stimulus as the economy experiences a prolonged slowdown. Economic recovery may take longer than expected due to the rise in customs duty, lack of capital infusion in PSU banks, less than estimated spending on infrastructure development.
With the budget out of the way, the focus will shift back to global factors, central bank cuts and earnings. Investors should look to accumulate stocks in decline and turn aggressive buyers closer to 11,000 Nifty level, Kotak Securities suggested.
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