Budget 2014: Impetus on restarting stalled growth engine, says Motilal Oswal, CMD, Motilal Oswal Financial Services

By: Motilal Oswal, CMD, Motilal Oswal Financial Services

The Union Budget, presented by the finance minister Arun Jaitley in a challenging fiscal situation and consolidating economy, was positive on several counts. The FM demonstrated a move towards greater realism and fiscal prudence. Fiscal deficit projection was relaxed to a more realistic level of 4.5per cent for FY15 (from 4.1 per cent estimate of the previous government).

The impetus is also on resuming the stalled growth engine while keeping a hawk eye on fiscal prudence. While tax revenue growth envisaged is somewhat aggressive at 19.7 per cent, the intent is to mop up additional revenues to the extent possible without hurting growth and actually incentivising it.

Incremental focus of budgetary allocations has shifted away from subsidies/distributive schemes to focus on areas, which will improve living standards for the majority of the country’s population. Increase in I-T exemption ceilings on income and home loan interest will also put more disposable cash in the consumers’ pockets thus boosting middle class consumption.

We believe this will aid most of the players in the consumer discretionary space in India. For automobile sector, the earlier announced continuation of excise concessions for auto sector being an additional positive. The measures to revive the investment side of the economy and support consumption will keep the Indian equity markets buoyant.

While shifting dividend taxes back to the investors is somewhat negative, the removal of the earlier tax arbitrage in favour of debt schemes of mutual funds wil l motivate incremental inflows into equity schemes. The Budget seeks to restore some balance in the sectoral performance of the index, as it is incrementally more positive for hitherto laggard sectors like real estate, infrastructure, coal mining and power as well as infrastructure financing companies&banks.

It is also positive for discretionary consumption sector. It is neutral for IT and pharma while being somewhat negative for the tobacco sector.

SECTORS TO WATCH OUT FOR

Real estate, infrastructure, coal mining and power.

The Budget is incrementally more positive for infrastructure financing companies/banks. It is also positive for discretionary consumption sector.