From Hdfc Securities…

The FM has done well in abiding by the fiscal prudence principles for FY21 and the targets set by her look achievable. But it will be crucial for her to stick to it for FY21, else the international rating agencies may have adverse views.  

The markets have reacted negatively to the Budget, mainly due to some disappointments on account of non-abolition of LTCG, confusion about the impact of DDT removal and taxing dividends in the hands of recipients. Also the alternative provided to individuals for lower rate of tax, provided they do not claim exemptions/deductions, did not seem too attractive. The alternative tax system discourages investments which market participants do not seem to be comfortable with. The continuance of LTCG and now dividend taxation might not stimulate positive sentiments for the capital markets but the other themes in the Union budget show a clear thrust towards improving the competitiveness of Indian businesses and Indian citizens while providing liquidity in the hands of individuals. Whether this will result in consumption revival will be interesting to watch. 

from Hdfc bank 

The Budget provides credible numbers in terms of the fiscal math, recognising the revenue shortfall faced this year. It uses up the 50bps point leeway that the FRBM act provides for both this and the next year which is a welcome step.

The budget commits to increasing the expenditure by 13% in 2020-21 with increased allocations for education, health and certain schemes in the agricultural sector. That said, this expenditure increase, coupled with the income tax cuts, does not seem to suggest a large fiscal stimulus that the current slowdown perhaps warranted. Of course, the fiscal space to do that was limited to begin with. The Fiscal Responsibility and Budgetary Management Act restrains the FM from deviating by more than 0.5 per cent of GDP from a glide path for the deficit of 3.3 per cent for 2019-20 and 3 per cent for the next. Those who are disappointed with the absence of more overtures to the financial sector either in the form of more recapitalization resources for stressed public sector banks or a fiscal commitment to buy out the pile of toxic assets that continue to impede fund flow might draw some comfort from a measure that government will offer support by guaranteeing securities floated. While need to await the fine-print on how this will work and how quickly this will be implemented, this move might be helping in easing the logjam in the financial to some degree. Government guarantees could help cash-strapped NBFC borrow at lower rates. It could also enable the central bank to offer cash in exchange for these securities if it were to plump for some out of the box measures to attenuate risk aversion in the markets.

For the bond market, the borrowing numbers seem to be broadly in line with market expectations and are unlikely to put significant pressure on yields in the short-term.

From Icici Bank

The first Budget of the new decade appropriately focused on holistic growth objectives by resorting to the escape clause permitted by the FRBM act even as the commitment to consolidation remains in place. The budget sets out goals for boosting income in agriculture and allied sectors, boost export and commerce, concentrate on physical infrastructure and promote much needed focus on the country’s human capital through health, education and skilling. In this regard, the proposal of encouraging foreign flows into education is encouraging. The focus on digitization to facilitate governance has been given a commendable priority and was underscored in this Budget as well. The idea of disclosing extra budgetary borrowings in the budget document is laudable as transparency would be welcomed by the investor community. The Government had introduced bold structural reforms in 2019 already through cut in corporate income tax and the spirit was continued in the restructuring of personal income tax rates and dividend distribution tax. These measures will help in reviving sentiment and boosting consumption demand especially at a juncture where the growth impetus has been receding. Other targeted reforms undertaken such as extension of incentives for affordable housing and incentives for export credit are also welcome. The decision to divest a heavyweight such as LIC is bold and will help to augment the financing kitty significantly. The proposal to set up the Investment Clearance Cell, which will facilitate a single point support structure is a welcome move and will further ameliorate our “ease of doing business”. We are also heartened that the Government has not cut capital expenditure and has retained its focus on improving the quality of the overall spending.

In view of the fact that India requires considerable capital flows to augment our savings the move to enhance limits for FPI holding in corporate bonds and tax free incentives for sovereign wealth funds are positive measures.