Budget 2020 – A Silent Boost to Consumption

Published on Feb 12, 2020.

The budget 2020 can be called a budget with the mammoth expectations for the Economy, Markets & Investors. 

The second lengthiest budget speech by Finance Minister though has left many disappointed. We are here interested to make out how this Budget is going to impact markets for next one year and what would be the prudent action after the budget for an investor – 

Market Impact – The Sensex tanked around 1000 points on the budget day mainly due to the lack of any stimulus like the expectation for any changes in LTCG tax was remain unfulfilled, the higher fiscal deficit number for FY 20 at 3.8% against previously perceived 3.3% and a highly ambitious disinvestment target to meet out the revenue shortfall for FY 21. What we think the one most positive point and the one most negative point for the market is hereunder – 

Positive – The new tax structure we think is a masterstroke to fix the economy in short term, as the propensity to consume for lower & middle income groups is much higher than propensity to save, given such, in the absence of a penal tax for not doing long term savings, the same corpus is going to move towards consumption. We think consumption stocks are going to be get benefited by this move and the act is a silent boost to consumption but quantum of the effect remains a question to watch for. 

Negative – A heavy reliance on disinvestment to meet the budgeted revenue shortfall. Notably the disinvestment proceeds realized in previous years are (In Lac crores) 0.40 (FY17), 1.00 (FY18), 0.95 (FY19), 0.65 (FY20), while for FY 20 it is revised downward by 0.40 lac crores from 1.05 lac crore. We think target of 2.1 lac crore is quite ambitious for FY 21 and it requires all other factors to be in line to support the mega IPO of LIC and stake sale at other PSEs. 

Given that Markets have recovered all the losses of the budget day, we think it is not bad to book if there are good profits on the table however we remain positive on the market and advice to look for lower levels for fresh/re investment. 

Clovek Research