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Union Budget Expectations: Whats in whose kitty? -
Union Budget Expectations: Whats in whose kitty?
Motilal Oswal | Published: 23 Jan, 2018  | Source :

      India’s Union Budget 2018-19 will be presented on 1st February 2018. Expectations and excitement run high as it will be the first post-GST  and last full-year budget before the General Elections in 2019.

  •  We note that the 2018-19 Budget will be presented against the backdrop of uncertainty over tax collections post implementation of the Goods & Services Tax (GST). We expect the government to revise its deficit target to 3.4% of GDP for FY18 (higher than the budgeted estimate of 3.2%) and to 3.2% of GDP for FY19 (higher than the target of 3% set last year). It means that the plan to meet the 3% deficit target will be postponed by one year (to 2019-20) for the third time.

  •  As the current government will present its last full-year budget before the 2019 General Elections, many in the market expect a heavier dose of populism. However, we believe that the government has limited financial resources to propose any targeted scheme for the poor. We also do not expect much relief on the tax front, except some reduction in the corporate tax rate for medium-sized companies.

  • From an equity market perspective, it is important to see how the Budget is able to make a difference to the rural sector, how the government is able to carry the burden of expectations, and whether the Budget strikes a right balance between good economics and good politics, especially with the General Elections around the corner next year. Also, as GST-related dust is still settling down, the markets will be keenly watching fiscal deficit projections and whether the long-term fiscal consolidation path is adhered to. We do expect the government to focus on rural and capex spending to boost sentiment and revive growth further. However, given the hard-achieved gains on fiscal consolidation, flexibility to go overboard on spending is limited, in our view.Consumption pick-up (especially rural and discretionary), cyclical recovery in corporate facing banks and gradual pick-up in private capex are our key themes to play in CY18. TITAN, EMAMI, UNSP, ICICI BANK, RBL, HDFC, SHTF, PETRONET, HPCL, TATA MOTORS, M&M, L&T, JSP, BHARTI are among our top ideas.

In its previous budget, the center had budgeted 12-year slowest growth of 6.6% in total spending, making it clear that fiscal policy is reaching its limits (refer our report for detailed analysis). Not surprisingly then, economic activity weakened considerably in FY18, further pressurizing the government. Following the fiscal consolidation path amid growing demand to support economic recovery is the biggest challenge for the government. An anemic rural economy and a weak investment cycle add to the concerns. It would, thus, be interesting to see how the Center handles the fires that are already raging.

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About Motilal Oswal

Motilal Oswal was founded in 1987 as a small sub-broking unit, with just two people running the show. Today it has a 2000 member team with a networth of Rs7 bn and market capitalization as of March 31, 2008 at Rs19 bn.


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