Budget 2019: Task Cut Out for Modi 2.0

Prabhudas Lilladher has released report Modi 2.0 budget expectation report. The government has its cut out due to 1) deep agrarian distress 2) slowdown in Automobiles and consumer demand 3) NBFC crisis and rising pressures in real estate and housing 4) need to provide tax relief to the middle class and 4) required push for the revival of capex cycle in the economy. The report says that the shortfall in indirect tax and GST collections will pose an incremental challenge to balance fiscal math.

• We expect slippage in fiscal deficit target from earlier estimates of 3.4% (Interim budget) given social agenda and need to pump prime the economy given slowdown in demand

• Disinvestment target for FY19 of Rs.800bn was achieved with considerable support from sales within PSU's. Interim budget had proposed a disinvestment target of Rs.900bn which we believe might be increased to Rs.1000bn

• With sustained focus on social-economic factor, expenditure on health, education likely to increase with extension of MGNREGA to remaining rural areas and its introduction in urban areas

• No major initiative is likely on labor reforms or sale of PSU's

• Increased outlay for rural India - road/infrastructure and employment generation

• We expect sustained thrust on roads, ports, sanitation, irrigation to revive the capex cycle

• We expect thrust on improving drinking water availability and river linking

• We expect imposition of tax on buyback of shares and tax relief to middle class under basic tax exemption or higher limit in 80CC

• Tax free bonds may be reintroduced to fund long term infrastructure projects

• Scrappage policy for commercial vehicles and incentives for creating EV charging infrastructure

• PSB recapitalization, MSME funding and NBFC liquidity improvement measures

• Increase in basic custom duty on steel and Aluminum

• Key Budget Picks: L&T, Ashok Leyland, M&M, HDFC Life, Titan Company, Crompton Consumer

(For Detailed Report click here)