B Gopkumar
The Union Budget for FY20 was clearly a strategic budget with the emphasis placed on maintaining the long-term goals of fiscal consolidation and infrastructure creation.
The government has continued to remain prudent and has marginally reduced the fiscal deficit target by 10 bps to 3.3 percent.
While the revenue targets are stiff, it has stepped up the non-tax collections and excise targets. The increase in taxation on the super rich is likely to have mixed long term implications.
The budget has positive connotations for the financial services sector with the much needed measures for NBFCs. The NBFCs were seeing a significant funding challenge in managing their asset liability management (ALM) and the government providing a short term guarantee to banks lending against quality assets is a significant positive.
In the recent times, PSU banks' participation had also decreased which has impacted the economic growth rate. The announcement of bank recapitalisation to the tune of Rs 70,000 crore is a significant positive.
Another sector which is seeing consistent focus by the government is affordable housing. Providing additional interest rate rebates will help improve growth. Also, the government has upped its target for its "housing for all" scheme.
All these measures will have a multiplier effect in stoking growth as multiple entities from construction companies, financial services firms, cement companies to household appliances will benefit from the scheme. The initiatives are gathering momentum and is likely to become quite significant in the future.
The infrastructure sector has continued to see decent growth with a focus on roads. While the total outlay on infrastructure spending was not significant, but the government has been quite efficient in utilising the funds properly on key long-term multipliers.
While the budget has tried to address multiple challenges but taxation on HNIs and buyback are likely to be short to medium term challenges. The market wanted much more than what has been announced, and in the short term, the market is more likely to remain range bound.
Overall the government's Budget continues to be a balanced one with managing short term challenges while keeping the long term strategic goals intact. Our top budget picks are SBI, HDFC, ICICI Bank, UltraTech Cement, KNR Constructions.
(The author is ED & CEO at Reliance Securities.)
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