As the markets gear up for yet another Union Budget, the mood remains sombre. With economic growth surprising on the positive, the government now faces the tough task of balancing stimulus withdrawal while maintaining growth momentum. The momentum in economic growth (CSO estimates of FY10 GDP growth at 7.2%) now calls for withdrawal of stimulus measures. The RBI has already taken the first step forward (with ~40% of the stimulus already withdrawn) in this direction. We expect the government to commence the rollback of fiscal stimulus measures by reverting excise and customs duties to the pre-crisis levels. We, however, expect continued thrust on the flagship social spending schemes (e.g. NREGS) and Bharat Nirmaan program – both of which could see a reasonable increase in allocations in the current budget. We also expect the right policy stimulus on infrastructure sector. On the reforms front, we expect a mix of rhetoric (largely on the GST and Direct Tax Code) interspersed with some action – especially around foreign ownership in insurance. Divestments have, so far, met with reasonable success and consensus expects divestments continuing into fiscal 2010. As benefits of revenue buoyancy (led by pick-up in tax collections) get offset by elevated expenditure and higher subsidies, we do not expect any significant decline in absolute borrowings by the government in FY11. We expect the Centre's fiscal deficit to decline to 5.7% of GDP (on a revised base) in FY11.
The budget is expected to be positive for the following sectors:
| Sector | Comments |
| Agri/Agri-related | With Food Security being the priority and agri inflation the priority, expect increase in allocation towards agriculture, irrigation and agri infrastructure. |
| Engineering/ | Thrust on schemes such as APDRP and RGGVY to continue and engineering companies to be key beneficiaries |
| Financials | Expect capitalization of PSU Banks to be passed during the budget. Hike in insurance FDI limit could be a key positive |
| Infrastructure | Focus on infrastructure spending to continue which will continue to drive order flows for construction companies and asset ownership opportunities for infrastructure developers. |
| Oil & Gas | Clarification on Section 80 IB deduction on Gas exploration for Pre NELP and NELP I-VII blocks |
| Real Estate | Affordable housing could be the theme for the budget |
And negative for the following
| Sector | Comments |
| Automobiles | Excise duty on small cars, 2Ws and CVs likely to be hiked by 4% |
| Cement | Excise duty concessions announced in the stimulus packages to be removed |
| FMCG | Roll back of stimulus – excise duty increase from 8% to 10% to be marginally negative |
| Telecom | Increase of MAT rate from current 16.5% could see lower reported earnings while hike in customs duty to impact future capex plans of telcos |
The bull-run in the markets through 2009 has been (temporarily) halted by rising concerns around monetary tightening and funding of the outsized fiscal deficit. The global economic scenario has also thrown up negatives around the weak fiscal position of countries in the EU and weaker-than-
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Management lies in dropping the last alphabet: manage – men. still better, drop one more alphabet: manage – me.
Samir Kumar Shah.
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