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Brokerages see consumption, two-wheelers and real estate sector companies as the biggest beneficiaries of the interim budget.
Many deemed the government’s revenue target as ambitious.
The government announced rural income distribution scheme for farmers and proposed to give rebates in income tax to individuals with income below Rs 5 lakh.
Given the fiscal expansion nature of the interim budget, brokerages expect the Reserve Bank of India to keep rates unchanged in the monetary policy review on Thursday, but change its policy stance to ‘neutral’ from ‘calibrated tightening’.
Friday’s interim budget was last budget by the government before the nation goes to polls in April-May.
Some brokerages believe that it may boost the incumbent central government’s chances in the general elections.
Here’s what brokerages are saying about the interim budget:
CITIGROUPThe scale of programmes announced in the interim budget was at the lower end of expectations, enabling the government to stay close to fiscal targets, said Citigroup.
The firm expects RBI’s Monetary Policy Committee will deliver a ‘dovish pause’ in its February policy with a change in stance.
Fiscal slippage and elevated core inflation could make RBI wait now, but modest fiscal easing leaves scope for some monetary easing in the future, said Citi.
CLSAThe foreign brokerage said the interim budget has offered several goodies for the bottom-of-the-pyramid but said the fiscal math appears optimistic and a large dividend from the RBI may be needed to make the math work.
Income support for farmers and reduction in income tax are likely to help low-ticket consumption items and policy support for the property sector can bring forward the expected revival in the sector, according to CLSA.
The brokerage said projected capital expenditure growth of 6% for FY20 will be bad for the capex recovery.
CLSA added that its cautious view on the market remains unchanged.
MACQUARIEThe brokerage said the interim budget’s fiscal math is a tad too aggressive due to optimistic assumptions on GST collections and divestments.
There is possibility of further fiscal slippage of 20 bps in FY19 itself and another 30 bps in FY20 based on lower direct tax collection in FY19 and 15% GST growth against 18% assumed, said Macquarie.
The brokerage said support to rural and middle class is definitely positive for consumption and two-wheelers, but the extent might be exaggerated.
Also, there is clear room for the deficit to slipup, which would be negative for NBFCs, said Macquarie.
MORGAN STANLEYAs more than half of India’s families will receive some cash benefit in the coming months, it may impact the incumbent government’s chances in the forthcoming general elections which it had possibly wanted after the two key opposition parties in Uttar Pradesh formed an alliance, said Morgan Stanley.
The firm has added 300bps weightage to consumer staples and is now overweight on the sector.
Government spending for farmers and middle-income families could boost consumption but valuations are keeping Morgan Stanley from being overweight on the sector.
The real estate sector received special attetion in the interim budget given its likely impact on job creation and growth, but Morgan Stanley said the overall impact may not be very significant.
NOMURANomura said the interim budget adds upside risk to both inflation and growth.
It is slightly expansionary and will boost consumption but it is likely at the risk of crowding out private investments, said Nomura.
The government has not clarified whether the farm package is a one-off or recurring, which holds the key to assessing whether there will be a reflationary impulse, it added.
RBI may flag the interim budget as an upside risk to inflation and the MPC may vote 5-1 to keep the repo rate unchanged in February 7 policy review, it said.
It may however, change its stance to 'neutral'.
UBSThe central government’s bias in the interim budget appeared to be clearly tilted towards populism ahead of the general elections, said UBS.
The revenue collection assumptions used by the government to arrive at the FY20 fiscal deficit targets look relatively ambitious, it said.
The cost of the package to support farmers was lower than market expectations.
The government's expansionary fiscal policy should help support consumption growth in FY20, but it could further delay recovery in capex cycle which is seen as key to sustainable growth, said UBS.
The firm expects RBI to keep rates on hold in the upcoming policy review on Thursday, but said stance may change to 'neutral' from 'calibrated tightening'.
