Friday, February 26, 2016

Pre-budget expectations Mr. Arun Gopalan, Vice President, Systematix Shares & Stocks

Mr. Arun Gopalan, Vice President, Research at Systematix Shares & Stocks

While we believe the Government would be able to meet the current year’s Fiscal Deficit target of 3.9% of GDP, but we expect the FY17 fiscal target to be raised from 3.5% to 3.7% of GDP. So we believe this year’s  Union Budget would be a challenging balancing act of (a) Fiscal Consolidation and (b) Fiscal Stimulus.

·         Putting pressure to this challenge will be the outflow from the Government’s coffers on account of the 7thPay Commission and the One Rank One Pension (OROP) scheme, together totaling some Rs.80,000 cr.

·         Another factor which we expect would weigh down heavily on the FMs coffers would be the huge amount of Tier I capital which would be required by the PSU Banks for their recapitalization. We expect the FM to make provisions of at least Rs.25,000 cr towards this.

·         Although we expect Lower Direct Tax revenues from corporates due to suppressed corporate earnings, we believe  this negative impact would get nullified by increased collection in Indirect Taxes, which should grow at 16.8% as against a target estimate of 15.8%.

·         We are expecting significant amount of budgeted capex in Railways, Infrastructure and Defence. The expenditure on these ministries constitute almost 75% of the total capital Expenditure. We expect the Government to try and leverage the recently concluded “Make in India” events, resulting in a capex push.

·         On the taxation front, we expect the FM to commence the process of gradual reduction of the Corporate income tax by around 100 bps. While we do not expect any significant increase in the Income Tax Slabs. We do not expect any change to the Capital Gains taxation structure, given the precarious situation prevailing across the equity markets.

·         We expect the Government to provide some sort of incentive to owners of vehicles manufactured prior to 2000. This would straight away result in a 50% Commercial Vehicle (CV) space in the Automobile Sector.

·         We expect some good announcements on the Renewable Energy space and also in the area of grid expansion.

·         We expect a big push in the Defence space to leverage from the “Make in India” campaign by increasing the budgetary allocation to indigenous manufacturers.

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