The Modi government’s last budget before elections provided relief to middle class and farmers without compromising on fiscal prudence. While there were no mutual fund specific reforms announced, the minister temporarily in charge of the Finance Ministry, Piyush Goyal has proposed a string of positive measures for the India’s economic growth.
Here’s what fund managers have to say about the interim budget 2018.
Budget will boost consumption, feel equity fund managers
S Krishna Kumar, CIO Equities, Sundaram Mutual
On the whole the budget appears to be well balanced. The fiscal deficit numbers are in line with expectations while the divestment assumptions are encouraging. The various measures announced by the government such as tax break, assured income for farmers will give additional Rs. 1.25 lakh crore in hands of individuals. This will help increase consumption and stimulate investment. The real estate measures will give much needed respite to the sector, he added.
Jinesh Gopani Head – Equity, Axis MF
The government’s decision not to tinker with the fiscal numbers was a positive move. The budget targeted the stressed sections of the society. The Pradhan Mantri Kisan Samman Nidhi scheme may provide support to 12 crore farmer families while the tax rebate will positively affect 3 crore middle income tax payers. In addition, the government has provided an indirect impetus to the real estate sector by offering better capital gains incentive to home buyers and increased moratorium period for builders.
PVK Mohan, Head-Equities, Principal MF
Preliminarily the budget appears to increase the purchasing power of the farmers and the middle class and is likely to give a general boost to the consumption story.
Manish Gunwani, CIO –Equity Investments, Reliance MF
Budget is pro consumption as significant stimulus has been provided for farmers and middle class. This will give the demand boost to consumer oriented segments particularly the low ticket consumption items. There is some slippage in the fiscal math but it's well within the limits and doesn't lead to any meaningful deviation from long term fiscal consolidation. In normal course, such expansionary budget would have led to inflationary pressure. However, given the recent weakness in domestic demand along with prevailing low inflation, this should not translate into higher inflationary impulse in the coming quarters. As we continue to expect the RBI to pursue easy monetary policy, the combined effect of fiscal and monetary stimulus would lead to sustainable growth recovery.
Abhijit Bhave, CEO - Karvy Private Wealth
The farm income support and tax rebate for salaried people below INR 5lakh will increase the personal disposable income. This will help boost consumption demand both in Bharat (Rural India) and India (Urban pockets of India). This is like a Dual Consumption boost and will have positive effect on consumption demand led sectors like automobiles, consumer durables, consumer banking and consumer staples. We will witness immediate effect as the scheme is effective from December and first transfer of cash benefit will hit accounts in this quarter itself.
E A Sundaram CIO - Equities, DHFL Pramerica MF
This is a budget with an eye on the elections. There is relief for the farmers owning up to 2 hectares of land, as they will get direct benefit transfers of Rs.6000 per annum. Salaried Middle Class got Income Tax relief by increasing standard deduction from Rs.40,000 to Rs.50,000; and income tax exemption up to a limit of Rs.5 lakh per annum. In the case of real estate, consumers got tax benefit for rent and capital gains u/s 54. All these are aimed at alleviating the pains of the public at large.
Concerns on fiscal consolidation front, a negative say debt fund managers
Lakshmi Iyer CIO (Debt) and Head Products at Kotak MF
On the fiscal front the outcome has been neutral. The fiscal deficit number of 3.4% is largely in line with market expectations. We are still awaiting data on the composition of bond borrowings. However, as there were no ballistic announcements it may not be materially negative. Now we need to see whether the central bank takes cognizance of these numbers in the monetary policy meeting next week.
Akhil Mittal, Senior Fund Manager, Tata MF
"Tilting towards populism, while avoiding a big bend", the government announced the interim budget for FY20. With potential of stoking inflationary pressures, the budget also pushes the fiscal consolidation away for some time, especially when there is an increased doubt on revenue generation. The FM has tried to address agrarian issues through a farm package, though the allocation does not disturb the fiscal math in big way. The revenue targets, especially on GST collections and disinvestment for FY20 looks quiet stretched and optimistic.
As far as RBI is concerned, we believe the budget pushes back possibility of rate cut in near future and expect RBI to highlight potential upside risk to inflation on account of slip in fiscal.
Arvind Chari, Head Fixed Income & Alternatives, Quantum Advisors
We have now had the 4th consecutive year of compromise on the fiscal consolidation and the targeted glide path with FY 19 fiscal deficit revised to 3.4% / GDP and FY 20 also pegged at 3.4% GDP as against the FRBM target of 3.1%/GDP.
Even with that, we are seeing a very high assumption on tax – with GST growth assumed at 18% for FY 20 which will be difficult to achieve as things stand currently.
The budget is inflationary with overall expenditure at 13% along with the new spending on farmer income support.
Bond markets may react negatively as market borrowing numbers for both the current fiscal and next fiscal are higher than market assumptions. The RBI and the MPC may view the fiscal compromise, aggressive assumptions and the potential inflationary nature of the budget and leave interest rates unchanged.
Amandeep Singh Chopra, Group President & Head of Fixed Income of UTI
This budget has been negative on two key areas that the bond markets were watching very closely.
The increase in the fiscal deficit target for FY19 was priced in. However, the additional borrowing for FY19 to meet the deficit was a surprise. Furthermore, revised fiscal deficit for FY20 at 3.40% was certainly higher than earlier target of 3.10% and market expectations of 3.30% presumably due to the additional outlay for PM Kisan Scheme. Secondly, it increased the net market borrowings to Rs. 4.73 trillion in an environment of weak demand for GOI bonds. In the earlier periods the net supply had been deftly managed by greater reliance on small savings. The lack of a reference to the recommendations of the FRBM review committee or guidance on the path forward on fiscal consolidation is a concern. These measures will likely aid consumption and could be a concern for an economy with an expected growth of 7.2% and a likely inflation of 4.2% in 2HFY20.
The bond markets reacted negatively to the announcements with the 10 year yields rising by 7 bps. However, expectations of a change of stance from the RBI in its 7th Feb policy may keep the yields range bound.