Expectations were high from the Union Budget, particularly on consumption-related sops, from the finance minister. These hopes, however, were left dashed as stimulus seemed near-absent — whether on the rural economy front or on incentives for the urban middle class.
Both have a significant role to play in reviving consumption sentiment and corporate earnings. Saurabh Mukherjea of Marcellus Investment Managers said single-digit earnings growth is something the markets need to be content with in FY20, for the seventh year in a row. “Relevance to economy was quite modest in the Budget,” he added.
The notable relief was in the affordable housing segment, where the finance minister offered incremental tax sops of Rs 1.5 lakh. Yet, whether banks and non-bank financiers will be now comfortable lending to real estate developers, remains a concern.
Lenders have been cautious on developer loans following the liquidity crisis that plagued markets after September 2018.
Non-banking financial companies (NBFCs) are important not only to fund consumer needs but also to ensure smooth movement of capital in the distribution chain — for consumer-oriented segments such as automobiles, durable, staples and discretionary spending.
Therefore, whether the Rs 1-trillion bailout package to NBFCs will help revive disbursements in the next 6-12 months, along with some regulatory relaxation announced by the Reserve Bank of India on Friday, are key monitorables.
Experts pointed out that the minister was quite categorical in supporting high-quality NBFCs by banks and MFs. “The question is spotting these fundamentally sound names, because liquidity will remain an issue for weaker players,” according to a fund manager.
Strong names such as HDFC, Bajaj Finance, and LIC Housing have been able to access the market easily, whether through the banking channel or MF instruments. The problem is confined to names such as Piramal Enterprise, Dewan Housing, and Edelweiss, where money has been quite challenging to come by.
Experts said that unless financiers are willing to take risks with these smaller players, a full-blown revival in lending at a systemic level may remain
elusive.
However, if one looks outside the corporate earnings territory, the Budget does have some goodies that could potentially boost the equities market.
First is the proposal to increase the minimum shareholding to 35 per cent. Dhiraj Relli, CEO and MD of HDFC Securities, said this could increase the weight of India in MSCI and other global indices.
Likewise, the move to tax buybacks of listed companies at 20 per cent also brings a level-playing field between dividends and buybacks — a key positive for small and minority shareholders.
The Centre’s plan to rationalise its holding in public enterprises bodes well from a market participation perspective.
Likewise, with interest slowly seeping into public sector bank (PSB) stocks, the Rs 70,000 crore of capital infusion could further boost sentiment if the money is well-channelised.
The government’s commitment to consolidate PSBs is also positive. The disinvestment target, at a little over Rs 1 trillion, could also bring in new names into the market, provided it isn’t an exercise of money going from one government body to another.
However, the more important takeaway is the government’s commitment to fiscal discipline and its ability to reduce the target from 3.4 per cent to 3.3 per cent, which could increase India’s appeal among foreign investors.
With the results season starting off in a week, investors need to brace for a lacklustre equity market. According to Nilesh Shah, MD of Envision Capital, the markets may, at best, remain sideways. “The markets will cheer stocks with the ability to post 10 per cent growth,” he added.
Which of the companies live up to expectations will soon be known.