FY2015 Interim Budget Review - Angel Broking

In the Interim Budget, the Finance Minister has effectively delivered on fiscal consolidation by reining in the fiscal deficit for FY2014 at 4.6% of GDP as against market expectations of 4.8% of GDP. The fiscal deficit print was the most keenly awaited number from the market perspective this time around as the Interim Budget is generally devoid of any major policy announcements and changes on the taxation front (except some tinkering in indirect taxes). For FY2015, the Finance Minister has estimated the fiscal deficit target at 4.1% of GDP presuming higher GDP growth and tax buoyancy but importantly it remains to be seen whether the estimates considered are retained by the new government that comes to the helm over the coming 2 - 3 months.

Reduction in excise duties

Despite fiscal constraints the government has provided some indirect tax respite ahead of the elections by reducing excise tax rates. Positively though, these excise duty cuts have been announced for sectors facing the major brunt of the slowdown such as Capital Goods and Industrial Electrical and Electronic segments and those with discretionary consumer demand such as automobiles. The Finance Minister announced reduction in excise duty on capital goods and consumer durables to 10% from 12% earlier to stimulate growth in these segments.

Excise duty cuts have also been announced for the automotive sector in the range of 3-6% to provide respite from the steep contraction in domestic sales. In addition, tax-related measures have been taken to encourage domestic production in segments such as mobile handsets, soaps and oleo chemicals, road construction machinery, and security paper for printing currency notes.

Lower-than-expected market borrowings

Gross market borrowings during FY2015 at Rs. 5.97lakh cr are estimated to be lower than market expectations of Rs. 6.3lakh cr and hence this is likely to be a positive for yields, at least in the near-term. The market borrowing program for FY2014 has also been revised lower as compared to the budgeted level.

Outlook and Valuation

Going forward, we maintain that the general elections due over the coming 2 -3 months are likely to take centre-stage for markets and their outcome would be crucial for determining market direction. In case a positive electoral mandate materializes, as markets are currently anticipating, it would likely result in positive momentum for cyclical stocks. We also maintain that growth momentum is likely to pick up going ahead given that the newly-formed government focuses on measures including structural reforms, clearing supply-side bottlenecks, expediting projects stuck in various stages of implementation and veers towards a good policy mix geared towards capital expenditure rather than subsidies. We continue to believe that improvement in the policy environment has the potential to boost infrastructure spending and crowd-in private investment, consequently resulting in a turnaround in the investment cycle in the economy.

Source : Equity Bulls

Keywords