Year of Great Expectations

Year of Great Expectations

As the countdown to the Budget has begun, the atmosphere is abuzz with hope, aspirations and huge expectations. Since this is the first full-fledged Budget being presented by Modi government, it is deemed to be nothing less than a litmus test for the Prime Minister’s vision.

What stock broker is expecting this year

Expectations Galore!

The policy reforms put forth in a Budget cannot be comprehended without understanding the macro-economic backdrop in which we operate. For this budget, there are a number of tailwinds such as declining crude oil prices, deflationary pressures and an easing of interest rate regime that have made things simpler for the Finance Minister.

This budget represents a golden opportunity for the government to further reiterate its pro-growth agenda. It is expected that the Finance Minister will introduce a gamut of measures to boost growth by way of increasing capital expenditures given the fiscal constraint. Some major highlights of this budget are expected to be the roadmap for GST implementation, shrinking of the subsidy bill and concessions to promote the ‘Make in India’ campaign.

Banking & Finance Sector: What’s in Store?

For our economy to board the fast-track train of growth and macro-economic stability, reforms in the financial services sector are absolutely imperative.

The ailing condition of our public sector banks has been an area of major concern and needs to be tackled right away. The banking sector is plagued with bad loans, capital deficiency and serious governance issues. As far as this budget is concerned, the biggest takeaway would be the level of capital allocated to the PSUs. For those looking at investment options, the budget announcements coupled with RBI’s monetary stance is going to be the trigger point as far as the banking stocks are concerned.

For the Mutual Fund Industry, the demands and expectations are focused on receiving ‘exemptions of capital gains tax’ with respect to (i) transfer of units in the merger schemes and (ii) switching of investments under various plans of a mutual fund scheme. It is also expected that Mutual Funds would now be permitted to launch retirement/pension based plans that offer tax benefits to investors.

In this current scenario of low inflation & falling interest rates, NBFCs is going to be the sector to watch out for. Given the prospects that Government will raise home loan exemptions and offer sops for affordable housing, the Housing Finance segment is believed to attract the maximum attention of stock investors. With respect to the demands for this year’s Budget, the deductions for provisions for bad debts should be made available to NBFCs, as is allowed for banks.

In view of the above, the sectors & stocks likely to outperform post-budget are Infrastructure, cyclical & interest-rate sensitive stocks, Banking, NBFCs and Manufacturing export companies.

Given the hype surrounding this eight month old Government, this budget is going to be the cynosure of all eyes, within India as well as our contemporaries & competitors abroad.  Let’s hope the Finance Minister passes this test with flying colors!

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