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Can interim Budget 2019 be a ‘feel good’ factor for Dalal Street?

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NEW DELHI: With less than a few weeks to go for the ruling BJP government to come out with its last Budget before general elections, Dalal Street isn’t keeping high hopes.

A few announcements for farmers and middle class look certain, which may offer small impetus to consumption-linked sectors. But analysts are split over whether they could actually lift stocks.

Ajay Bodke, CEO & Chief Portfolio Manager PMS at Prabhudas Lilladher believes that the government may announce universal basic income (UBI) scheme to address rural distress on a permanent basis.

There could also be certain tax sops for middle class, higher standard deduction or lowering of tax rates or some other 80C benefits. Besides, vehicle scrappage policy for automobile has been under consideration for long, and there has been various round of consultations under the Transport Minister Nitin Gadkari. The policy could be in focus.

“Auto sector in particular has a lot of multiplier impact on various sectors. The government could consider pushing through the policy. After the Lehman crisis, US government had announced cash for clunkers policy. A similar policy could be a big boon for the domestic economy. It will also lend support to auto sector whose sales are faltering,” Bodke adds.

Recently, FICCI recommended an across-the-board cut in corporate tax rate to 25 per cent, irrespective of turnover, in the Budget. CII, on the other hand, has urged the government to double the income tax exemption threshold to Rs 5 lakh and increase the deduction limit under Section 80C to Rs 2.50 lakh to incentivise savings.

Sources told ET Now that the Centre may look at hiking savings limit, offering tax benefits for pensioners and more concessions on housing loan interest. The report suggests customs duty could also be rejigged.

Mahesh Patil of Aditya Birla Sun Life Mutual Fund expects the narrative would, by and large, be more towards trying to make a feel-good factor through consumption stimulus.

“The better way to play would be to focus on the consumer sector, especially companies related to low ticket discretionary consumer items. Besides, rural push would be there. We expect some kind of a money flow into the hands of the farmers because of the farmer distress and one could play some of the rural themes purely from a short-term perspective,” Patil tells ET Now.

Analysts said that the lack of jobs and rural distress had given a setback to BJP in the recently concluded state elections, and thus, eyes are on universal basic scheme.

But how big it be?

AK Prabhakar of IDFC Securities believes that the government has limited room for making any big announcement, as there is a big shortfall in GST revenues. If the government announces higher-than-expected sops deemed populist, the market might not take them positively as fiscal stability will go for a toss, Prabhakar said.

This analyst does not see any corporate rate cuts. He expects marginal changes to income tax, but that may fail to lift consumption stocks, he said.

Bodke said any gains would depend on how schemes such as UBI is carved out. “For example, if fertiliser subsidy is subsumed in UBI, its impact may be softer as far as the addition fiscal blow is concerned. “We have to wait and see how the government structures it,” Bodke said.

The FM Arun Jaitley will table the interim Budget on February 1. Whoever wins in May elections will announce full year Budget in July.

Sunil Subramaniam, MD & CEO, Sundaram Mutual Fund said that any action by the BJP do farm loan waiver will seem like Me Too step.

“The government will look at innovative ways to do. There is not much headroom for the government to actually go and spend money. This vote-on-account thus be a non-even. It will be a steady thing and not rocking the boat,” Subramaniam told ET Now.

Source: Economic Times