Fiscal Prudence and rural focus boosts market sentiment: Angel Broking

Views of Mr. Mayuresh Joshi (Fund Manager, Angel Broking):

"Markets have given thumps up to the budget it was a balanced budget in terms of the rural, infrastructure and push for affordable housing. Fiscal target of 3.2% looks manageable considering the ambitious expenditure esp on the capital exp front be supported by buoyancy in revenues and an expanding tax base which seems plausible at this juncture considering the 17% growth we have witnessed in direct taxes in the fiscal gone by.

No negative surprises in terms of fear that the market had on global capital gains or anything to do with the tweaking of holding period so that was big relief for the market which was relevant in the rally that you saw.

Market were expecting the roadmap related to cut in the corporate taxes to be mentioned in the budget but this was restricted to MSME having turnover of less than 50crs, being subject to a lower rate of 25% instead of the usual 30%. Albeit, the Revenue Secretary hinted towards strong commitment of the Government towards the same.

Implementation of GST is going to take place in the coming fiscal and that will eventually lead to rationalization and subsuming of various state duties, and because the Centre shall bear the load in terms of states share for the first year the mop-up here might need to be revisited on a periodic basis. However, as the rollout happens during the year the effectiveness and efficacy in collections should lead to a greater tax base and better indirect collections in the coming fiscal's.

Demonetization clearly has its effect partially but numbers have not executed in Q3, you might have some changes in Q4. But earnings recovery should start happening in first quarter. What could probably lead earnings recovery with IT & Pharma sectors struggling a little bit would be more banking and financial services. Credit growth is in higher single digits if that improves to higher double digits with industry movement base and asset quality base is coming down specially MSME which is less than 50 crs tax rate coming down from 30 to 25 from stress should come down and. So credit cost and stress on asset quality should come down and return ratios should improve.

Because the push has been given to affordable housing in the budget the entire impact can been seen in metals, steel, cements stocks, ceramic stocks, Home improvement stocks, Consumer Durable stocks. With demonetization taking place, the return of sectors in terms of housing finance companies, rural finance companies, customer discretionary, customer staple's and FMGC this should also bounce back though the input prices have moved up significantly as demand starts coming back in the next 2 quarters and as it sustains will be able to pass on this prices.

It was a balanced budget, there is always hope and excitement about too many things from the budget itself but the finance minister tried to give a very rational budget in a pragmatic way, in terms of numbers and it does appear achievable.. Even in FY17, budget estimates and revised estimates were achieved, so this year too, it should be achieved provided it earns domestic support and gets favourable global conditions.

I don't see any risks unless Trump comes up with some policies creating trade bearers that can create some disruptions in the global market. Apart from this, earnings should show some recovery in the upcoming two to three quarters.

By FY18, we should see some recovery. Private Capex should pick up in the second half. Brexit and similar political issues are an outside global risk that nobody can perceive at this point of time.

India is a better place than any other emerging economy. It is predominantly a domestic consumption story unlike the other emerging pack which are driven by commodities and exports. Our forex reserves hold us in good stead and as the Exchequer mentioned in his budget speech, we have sufficient reserves to take care of 12 months of import cover. Our current account acquisition also remains at a lower level. Inflation is also in a lower level, which means it's a real boom for the consumers. Also looking at GDP @ 7 and Inflation @ 5, it can be said, earning growth should be around 11% - 12% for FY17."

Source : Equity Bulls

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