The stock market gave a tepid response to the Budget 2019 until the announcement of tax rebate for individual taxpayers with an annual income of up to 5 lakhs. The benchmark indices extended initial gains with Sensex rising over 500 points, while the Nifty50 traded above 10,950. Sectorally, auto, banking, agriculture, and FMCG stocks rallied as budget measures are expected to provide a boost to sectors in domestic consumption like automobiles, consumer staples and durables, real estate, building materials, home improvement and retail-focussed banking and financials.
"The market expected Budget 2019 be a pro-rural/poor and middle class budget, and it meets those expectations. The increased cash availability due to the measures taken would aid consumer demand--FMCG, white goods and two-wheelers. However, I would take the increased defence budget with a pinch of salt," said independent market analyst Ambareesh Baliga.
"We need to see where the additional liquidity would be available to the government, otherwise it would be a budgeted spends--order would be placed but it won't be paid for--exactly what we are witnessing for HAL and other such Indian defence suppliers as payments have been overdue," he added.
Gaurav Dua, Head of Research, Sharekhan believes the government did not get carried away and the dole outs in the run up to elections are in line with expectations.
"The Budget 2019 would boost consumption and is positive for the economy and the growth in the corporate earnings. Despite constraints, the capital expenditure allocations have also remained healthy with continued focus on infra development. Overall, a prudent budget in the light of the political compulsions and macro situation," he said.
Here are five takeaways for the stock market investors:
Fiscal slippage: The stand in Finance Minister Piyush Goyal estimated the fiscal deficit for the financial year 2019 to come in at 3.4 per cent of the gross domestic product (GDP), slightly higher than the targeted 3.3 per cent. For FY20, the deficit is expected to be 3.4 per cent. The market took the fiscal slippage in strides as the deficit was widely expected to be higher than targeted due to a combination of revenue shortfalls and increased spending ahead of the general election in May 2019.
More disposable income in hand: Street reacted positively to the announcement of doubling the tax rebate to Rs 5 lakh from the existing Rs 2.5 lakh. The government also raised standard deduction limit from Rs 40,000 to Rs 50,000.
FM Goyal also announced that TDS threshold on interest on bank and post office deposits will be raised from Rs 10,000 to Rs 40,000. TDS threshold on rental income was also raised from Rs 1.8 lakh to Rs 2.4 lakh.
Goyal hiked the gratuity limit from Rs 10 lakh to Rs 30 lakh and also announced a Mega Pension Yojana, under which Rs 3,000 per month will given to unorganised sector employees. "It may become the world's biggest pension scheme for unorganised sector in five years," he said.
"Complete tax rebate up to Rs 5 lakh is a populist measure. However, it is important to understand how the loss of tax collection equalling around Rs 18,500 crore, will impact the overall economy," says Partho Dasgupta, Partner/ Tax & Regulatory Services, BDO in India.
Relief for banking sector: The stocks of most banks under the PCA framework rallied after Goyal said that he expected more banks to come out of PCA soon. Notably, RBI had removed the three PSU banks--Bank of India, Bank of Maharashtra and Oriental Bank of commerce--from the Prompt Corrective Action (PCA) framework yesterday. Eight public sector banks--Allahabad Bank, United Bank of India, Corporation Bank, IDBI Bank, UCO Bank, Central Bank of India, Indian Overseas Bank and Dena Bank--still remain under PCA framework, which imposes lending restrictions and prevents them from expanding, among other curbs.
Support to farmers: Goyal announced measures to address some of the distress that the farm sector has been facing. He said the government will provide Rs 6,000 per year to farmers in three instalments, which will be fully funded by the central government and will benefit 12 crore farmers. The government has set aside Rs 75,000 crore for the scheme for FY20.
The allocation to MNREGA, meanwhile, has been hiked to Rs 60,000 crore for 2019-20.
The interim finance minister also announced a 2 per cent interest subvention for farmers hit by natural calamities, while offering 3 per cent more to them for timely loan payment.
Divestment target maintained: Goyal noted that the government had received over Rs 1 lakh crore from disinvestment proceeds during 2017-18. He sounded confident of crossing the target of Rs 80,000 crore this year. However, so far the government has collected only Rs 35,533 crore. The interim FM did not highlight how the government is planning to achieve the target in the remaining two months.
Global brokerage Nomura pointed out that while the government is racing to meet its disinvestment target (including through 'novel' mechanisms such as raising money through its exchange-traded funds and share buybacks by public sector companies), it will fall short by Rs 15,000 crore.